Currency hierarchy in times of energy crisis (Daily analysis 27.10.2021)

The disposition of forces on the currency market in the face of rising oil prices and a bond sell-off is clear. Currencies of countries exporting raw materials, especially energy, are leading the pack. Among the G10, the Norwegian krone and the Canadian dollar are the leading players. The former is also supported by monetary policy.

Norges Bank was the first among the main central banks to raise rates and will continue the cycle, increasing the interest rate attractiveness of the krone. In the emerging markets world, the ruble and the Mexican peso are holding the cards.

In the second group, the currencies whose monetary authorities are ready to react to inflationary threats with a rapid and decisive policy tightening are strong. This includes the pound (the market is pricing a hike as soon as next week), but also the dollar. The advantage of the US currency is also energy independence. It is also positive for the Swedish krona, for which the economic slowdown in Western Europe will become an increasingly severe burden. The zloty and the Czech koruna are in a similar situation. The common factor is the significant export of goods to the eurozone.

The spectre of the energy crisis places the euro (and the yen) in the worst position. Both economies are large importers of raw materials, and both central banks do not even want to think about raising interest rates not only in 2022 but also in the following year. In the eurozone and especially in Germany, growth is already decelerating sharply, largely due to disruptions in supply chains and shortages of components for production. The troubles of the eurozone and the single currency are traditionally water for the franc's mill. The Swiss central bank, although it has probably intensified its interventions in the market (in Q2, they were worth around 5 billion CHF), is not able to reverse this trend; it can only temper it.