Far less inflation to influence currencies in future
Sept 10 (Reuters) -There is less inflation to influence currencies in the future which will allow central banks to embark on much anticipated easing cycles. It will also relieve pressure on many currencies of nations dependent on energy imports that were severely impacted by the surge of inflation that resulted in a global tightening cycle.
The big drop in key commodities could be game changing. Brent crude is far cheaper now than when Russia invaded Ukraine, so is natural gas and LNG. Staple foodstuffs like wheat and corn are also much cheaper. Rice prices have recently tumbled and oil might fall further.
Without the support of producers, oil, which is the cheapest in almost three years, would surely be cheaper, and producers are hoping to increase production. If they do then crude could fall below the 100-MMA at $69.42/bbl, and important prior lows around $65/bbl. Even if supply cuts are maintained, oil has halved from the peaks traded after Ukraine's invasion.
Nations that rely on oil imports, whose currencies have crashed to record lows versus the dollar, including China, India and Turkey, could rebound. The trade-weighted value of Japan's yen is also likely to rise from the record low traded in July.
Major currencies like euro, pound and Swiss franc should gain support as will a lot of currencies hard pressed when U.S. interest rates were high, like South Korea's won, Thai baht, Singapore and Taiwan.
On the other hand, the currencies of major oil producers like the United States, Canada, Norway, Russia, Brazil and Mexico could suffer.
For Russia, Norway and Brazil, whose currencies are already weak, a drop in oil income could have a significant impact.
For more click on FXBUZ
Key foods https://tmsnrt.rs/4d2ogdc
Brent Crude oil, natgas and LNG https://tmsnrt.rs/4gfPkZt
(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)
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