Dollar rallies as oil-linked currencies skid amid crude’s price drop

The U.S. dollar inched higher versus its main rivals on Friday, as U.S. traders returned from the Thanksgiving holiday, and investors closely tracked an intensifying decline in crude oil.

The global oil benchmark, Brent for January delivery LCOF9, +1.97%  was down nearly 5%. Growing output continues to weigh on the oil price, despite a recent cold snap. The price drop hurt financial assets across the board, including stocks and commodity-linked currencies.

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The Norwegian krone USDNOK, -0.4397%  led developed market losers, trading near its lowest level since May 2017, with one dollar fetching 8.5915 krone, up from 8.5349 late Thursday in New York. Canada’s dollar USDCAD, -0.2947%  also weakened versus its U.S. rival, leaving the greenback to rise to C$1.3208, from C$1.3190.

In emerging markets, oil-linked currencies, the Russian ruble USDRUB, +0.4221%  drifted sharply down, recently at 66.224 ruble per one dollar, compared with 65.603 ruble late Thursday.

As for the greenback’s trade against major rivals, the ICE U.S. Dollar Index DXY, -0.12%  was up 0.1% at 96.830, headed for a 0.4% gain this week.

Elsewhere, European markets continued worrying about Brexit developments ahead of a key summit this weekend.

The future for Gibraltar — a British-held peninsula in the south of Spain — following Brexit is the latest hurdle to emerge during the U.K.’s divorce from Brussels, with Spain demanding to get more of a say in the future of the key transport hub.

Meanwhile, embattled U.K. Prime Minister Theresa May has been trying to appeal to the British public to support the deal she agreed to with the EU on Thursday. The deal had led the pound to climb higher.

On the data front, November PMIs for the eurozone underperformed consensus estimates, with the composite index coming in at 52.4, versus 53 expected, which also weighed on the euro. A reading of at least 50 indicates improving conditions.

The weaker-than-expected data dealt a blow to any investors looking for a eurozone rebound in the fourth quarter, market participants said.

“Continued weakness will have many beginning to doubt the ECB’s ability to hike rates next year,” said Win Thin, global head of currency strategy at Brown Brothers Harriman. “Quantitative easing will undoubtedly end in December but talk of another TLTRO [targeted longer-term refinancing options] is feeding into a more dovish take on the ECB.”


EMERGING MARKETS-Emerging currencies slide on higher oil, strong dollar

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Nov 12 (Reuters) – Emerging market stocks and currencies fell on Monday, pressured by a strong dollar and rising oil prices with net crude importers bearing the brunt.

The MSCI index of emerging market currencies fell 0.3 percent as the dollar built on last week’s gains and hit a 16-month high, while oil prices rose by more than one percent on Monday as top exporter Saudi Arabia announced a December supply cut.

This hit currencies of net oil importers such as the Indian rupee and the Turkish lira.

“The recent rebound in oil prices is a reminder that it will become increasingly difficult for twin deficit currencies – rupee, rupiah and peso – to smooth currency volatility via rate hikes without hurting the economy, and through interventions without depleting reserves,” said Stephen Innes, head of Asia Pacific trading at Oanda.

But, the bounce in oil prices lifted the currency and stocks in Russia – a net exporter of oil – with the rouble up 0.6 percent and the Moscow stock exchange index climbed by 0.5 percent aided also by a delay to the imposition of U.S. sanction on aluminium giant Rusal.

“Oil is improving sentiment for the rouble today but there is also another driver for the rouble – Rusal sanctions. Some deadlines were extended by U.S. authorities. And we are not seeing any other negative news related to sanctions,” said Vladimir Miklashevsky, a senior economist at Danske Bank.

The Sri Lankan rupee weakened after dollar-bonds fell as President Maithripala Sirisena dissolved parliament on Friday night and called an election for Jan. 5 in a move that will likely deepen the country’s political crisis.

The Chinese yuan extended losses, after its worst week since July as soft economic data last week showed cooling of the economy, while South Africa’s rand was weaker by 0.3 percent as yield-seeking investors continued to back the dollar.

MSCI’s benchmark emerging equity index was down 0.6 percent, trading at its lowest level this month as exchanges in South Korea, India and South Africa declined.

China mainland stocks , however, shined through, snapping a one-week losing streak boosted by a series of stimulus measures, notably the securities regulator making it easier for companies to buy back shares, possible implementation of large scale tax cuts.

Focus also remains on U.S. Vice-President Mike Pence’s attendance at the Association of South East Asian Nations summit this week, which could see him provide clarity on U.S. intentions for improving trade relations with China.

“Trade is always going to be a concern in the current environment for Asia, as about one third of all global trade goes through the region, and it is slowing, which means slower incomes growth across the region,” said Robert Carnell, chief economist and head of research at ING Asia.

In Eastern Europe, Romania’s leu touched its lowest since May last year as consumer price inflation slowed in October.