So yesterday I said I thought oil prices were finding a bottom and explained the fundamentals. One part of my analysis totally missing was that there is a risk that China has triggered a fresh round of FX wars that will now bring in some of the largest oil producing countries in the world into the game. What I also didn’t say was that a few of the largest oil producing countries in the world have already let their currencies go and have no problem with the impact (see Russia, Venezuela, for starters) on their economy or the price of oil.
Oil prices could continue to be profoundly impacted by this race to the bottom in EM oil producing currencies. The Russians have proven they don’t care where their currency goes if they sell oil in USD but produce in local Ruble based costs.
The Kazakhstan Tenge devaluation like China’s is not a big surprise if you have been following policy announcements or political headlines – or just know what has been going on with the terms of trade.
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