Crude oil prices have jumped 20% so far this month, helping petro currencies to appreciate by between 2% and 14% against the euro and the US dollar. Confidence that US oil production may soon fall and that global demand and supply are becoming more balanced has prompted Societe Generale to raise its average 2015 price forecasts for Brent crude and WTI by $4.3/bbl to $59.54 and $53.62, respectively.This more bullish profile should in theory augur well for currencies of oil-exporting countries such as the CAD and NOK in G10 and the RUB, BRL and the MYR in EM. In practice, however, this logic may be undermined by the uncertain outlook for higher US interest rates.Rising oil prices have historically tended to be accompanied by a lower USD (and reduced currency market volatility), but this combination also threatens to lift inflation expectations. With the labour markets in the US already tight though devoid from wage inflation, the edging up of inflation expectations would strengthen the case for the Fed to hike rates, and this may create yet more instability in currencies.
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