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FX Daily1.pdf


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13 January 2014
FX Daily: Lower oil prices: FX & asset market implications

Figure 1: Relative FX performance in key years when oil prices fell sharply

Best performers vs
USD

Worst performers
vs USD

1984

1986

1993

1997

1998

USD
0.0%

CHF
27.6%

JPY
11.6%

USD
0.0%

JPY
15.4%

CAD
-5.8%

EUR
27.2%

NZD
8.8%

GBP
-3.8%

EUR
7.4%

JPY
-7.9%

JPY
27.2%

USD
0.0%

CAD
-4.1%

CHF
6.4%

AUD
-8.0%

SEK
11.1%

CHF
-1.4%

CHF
-8.2%

GBP
0.4%

SEK
-10.9%

NZD
6.0%

AUD
-1.5%

JPY
-11.3%

USD
0.0%

EUR
-13.6%

NOK
2.8%

GBP
-2.7%

NOK
-12.6%

SEK
-2.2%

NOK
-15.2%

GBP
2.6%

CAD
-3.8%

SEK
-13.7%

NOK
-3.4%

CHF
-16.2%

CAD
1.3%

EUR
-6.9%

EUR
-13.9%

AUD
-6.0%

GBP
-20.2%

USD
0.0%

NOK
-7.8%

NZD
-17.7%

CAD
-6.6%

NZD
-27.3%

AUD
-2.4%

SEK
-15.1%

AUD
-18.1%

NZD
-9.5%

Source: Deutsche Bank, EcoWin

What history says about FX implications:
The simple currency performance rankings (Figure 1 above) for these key oil
years is helpful in this regard and shows:
1.

The USD has typically done well, with the notable exception of 1986.

2.

The EUR performance in years when oil prices decline errs on the
softer side. One view is that the DEM traded well on higher oil prices
because of the BBK’s relative sensitivity to total inflation compared to
other Central Banks’ focus on core inflation. The corollary would
explain some tendency for the DEM to underperform in periods where
oil prices are soft. In current circumstances where a small decline in
EUR headline inflation to 0.5% or below, could provoke QE or negative
depo rates, oil has particular scope to be negative for the EUR.

3.

As an example of relative performance, the USD has always done
better than the Aussie. The poor Aussie performance partly relates to
the tendency for industrial commodities to also underperform in years
of oil price declines.

4.

Similarly, the yen was always near the top of the above FX league
tables, which of course fits with perceptions of Japan’s dependence
on oil imports. Figure 2 below however suggests that Japan’s energy
efficiency means it is less a beneficiary of lower oil prices than
commonly assumed.

5.

AUD/JPY has typically gone down, in years when oil prices have gone
down. Even more intuitive, short NOK/JPY is a trade that has worked
in each year when oil prices have declined sharply. Again the yen has

Deutsche Bank Securities Inc.

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