Falling oil prices are fast becoming a catalyst for emerging markets.
Last week’s slide in crude was partly behind the weakness in the Russian ruble, Mexican peso and Malaysian ringgit, according to Societe Generale SA. With oil wallowing in a bear market, OPEC and its allies started laying the groundwork to cut oil supply in 2019 in a meeting in Abu Dhabi on Sunday.
“Oil-importing emerging economies’ currencies would likely react negatively to a cut in OPEC output given Iranian oil exports are already likely to wane over time under the impact of U.S. sanctions,” said Mansoor Mohi-uddin, the Singapore-based head of foreign-exchange strategy at NatWest Markets.
“In contrast, if oil prices fall it will benefit the currencies of major oil-importing emerging markets including the Indian rupee and Turkish lira.”
The outlook for oil, a key source of revenue for Russia and Saudi Arabia, is adding a fresh twist for a market already obsessed with Federal Reserve tightening and the U.S.-China trade dispute.
The prospect of any breakthrough on trade took a knock Friday when White House trade adviser Peter Navarro warned Wall Street not to pressure President Donald Trump into a quick deal.
On the domestic front, there’s a chance Mexico’s central bank will increase interest rates Thursday after the peso clocked up its sixth weekly loss.
Policy makers in Thailand, Indonesia and the Philippines will likely leave their benchmark rates unchanged, thanks to gains in the rupiah and the peso, according to ING Groep NV.
The ruble led a retreat in emerging-market currencies last week after the Fed signaled it will keep raising rates, making Wednesday’s release of U.S. consumer-price data the next pointer for monetary policy.
Oil futures climbed on Monday after a record run of losses as Saudi Arabia said it will reduce crude sales in December and speculation rose that OPEC and its allies will cut output next year.
Futures tumbled into a bear market Thursday, and Brent crude dipped below $70 a barrel on Friday for the first time in more than six months, as fears of a production crunch and $100-a-barrel crude through the summer morphed into talk of a glut.