Oil-Linked Currencies Roiled by Historic Slump in Crude

(Bloomberg) -- The dollar surged to its highest level in nearly two weeks as oil-linked currencies suffered from darkening prospects for global economic growth and crumbling demand for crude.

The greenback gained against every Group-of-10 currency on Tuesday, driving the Bloomberg Dollar Spot Index up as much as 0.6%.

The dollar’s movements over the past month and a half have captivated investors because the currency has become a leading indicator of how worried traders are about the economic harm from the pandemic. Spikes signal a deeper sense of dread.

The disaster in the oil industry -- crude futures had a negative price on Monday, a bet that energy producers would have to pay derivatives traders to take oil off their hands -- is propelling the dollar even higher as the situation weighs on currencies from energy-producing nations. The Norwegian krone did worst in the G-10 on Tuesday, recently down 1.6%. The Canadian dollar lost 0.2%, but plunged 0.8% earlier.

Analysts see the pandemic-fueled hit to demand for crude posing a headwind for these currencies for months to come.

“We did not expect more oil-related CAD weakness,” said Shaun Osborne, chief foreign-exchange strategist at Scotiabank in Toronto, referring to the Canadian dollar. “It’s harder to rule that out now.”

The worst day for U.S. stocks in almost three weeks also helped drive traders into the safety of dollars. Emerging-market currencies did poorly as well, with the ruble -- Russian is a major energy producer -- doing worst, down 2.1% against the dollar.

“They will remain really volatile, in terms of oil currencies and oil itself,” said Brad Bechtel, global head of foreign exchange at Jefferies, who estimates the economy to start reopening in six to eight weeks. “But it could last longer.”

©2020 Bloomberg L.P.

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