FXStreet (Delhi) – Research Team at Goldman Sachs, suggests that the full effects of oil prices staying low (at around $45/bbl under our commodity team’s central forecast) for long will continue to be felt for some time in oil-producing economies.
Key Quotes
“However, at least among EMs (such as Russia and Mexico), where currencies have been allowed to move significantly and absorb the bulk of the terms-of-trade shock, the remaining adjustments to government and private-sector balances should be less immediately painful. Argentina may be the surprise winner of the ‘new oil order’ as the upcoming political transition paves the way for the exploitation of the ‘Bakken of South America’.
We are more concerned about places such as Nigeria, Saudi Arabia and Venezuela, where pegged exchange rates mean that the impact of the terms-of-trade shock is likely to fall more squarely on government fiscal balances (with risks to the sovereign credits), domestic household and corporates – and where, in the limit, the exchange rate peg may itself be at risk. Of course, pressures on both groups of EMs would increase in the event that oil prices fall further – to around $20/bbl if storage capacity is exhausted, as outlined by our Commodity team in their downside scenario.
Going into 2016, we see greater downside in the metals and bulks part of the commodity complex: specifically, our end-2016 forecasts call for copper, iron ore, gold and coal to move roughly another 10% lower. From a market standpoint, therefore, currencies with relatively greater exposure to these metals – including the CLP, ZAR, PEN and IDR – should be relatively more vulnerable than the pure oil plays. The metals complex is also more exposed to China: even a growth-neutral rebalancing that sees consumption grow at the expense of fixed asset investment would be more supportive for oil demand than metals demand.”
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