How the Oil Market Impacts Foreign Exchange

Few commodities impact the value of foreign currency quite like oil. It is literally the life-blood of entire economies, impacting everything from the livelihood of citizens, to GDP, …

4 0
4 0

Few commodities impact the value of foreign currency quite like oil. It is literally the life-blood of entire economies, impacting everything from the livelihood of citizens, to GDP, to political stability. We look at those countries most affected by oil prices, and how it impacts the value of their currency.

Major Exporters

Countries who depend largely on oil for export revenue typically benefit from higher oil prices. When prices fall, their economies suffer, and the value of their currency tends to fall as well. Recently, oil production has seen a rise world wide, lowering prices. The price per barrel has fallen from $100/barrel to around $40 a barrel since 2014, with no signs of recovery.

Image Credits geralt, CC0 1.0

The following countries heavily depend on strong oil prices for a stable currency:

  • Russia: Russia has famously (or infamously) refused to diversify its economy, and relies heavily on oil and energy. Oil and energy account for up to 70% of their exports. This has resulted in a crippled Russian economy, and consequently the value of the Ruble has been in sharp decline since mid 2014.
  • Brazil: In 2006, Brazil became self-sufficient oil producers, ushering in a new age of energy technology including hydroelectric power. Unfortunately, Brazil’s investment in oil production was somewhat poorly timed, and isn’t doing anything to help them out of current political or economic straits. The Olympics will likely not have the positive impact on the value of the Real as Brazilians may have hoped for.
  • Canada: Oil accounts for almost a fifth of Canadian exports, and like the other countries on this list, significant depreciation of the Canadian Loonie can be seen in direct correlation with the 2014 drop in oil price. Whether or not Canada will be able to recover remains to be seen, but the country’s other major exports, pharmaceuticals and lumber, are also seeing a decrease in price and are contributing to Canada’s financial woes.

Major Importers

Although some large nations are negatively impacted, falling oil prices, analysts on the whole consider it to have a positive impact on the world economy. Lower energy prices also stimulate internal economies. As you can see, now is a great time to start trading, with many currencies standing to gain from this situation. Head to easyMarkets to make your account and start investing in your future.

These countries are major importers of oil:

  • The United States: After being known for so long as the oil-importers of the world, the United States has recently lowered consumption and importation of foreign oil. At the same time, low prices have been taken advantage of in order to increase American manufacturing exports by 6% in the past year. Lower prices have resulted in increased trade for the United States, but the Dollar has not been largely impacted by the change thanks to significant diversification.
  • China: China is also reducing its oil consumption, and consequently its importation. It remains, however, the first or second oil importer in the world, and stands to benefit greatly from reduced oil prices. Over the past 2 years, the Yuan has remained fairly stable against the USD, despite insecurity from investors around the world, in part due to more favorable energy prices.

Winners and Losers

Playing against the winners and losers when it comes to energy prices is a smart bet, especially when considering countries like Canada and Russia with heavily invested oil economies. Oil prices may rise again in the future, but for now, investors should take advantage of this rock-bottom commodity.

 

Share This:

In this article

Join the Conversation