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Rouble, Peso differ on oil despite commodity rally

The performance of the Mexican peso has differed from that of Russia’s rouble, despite both being tied to oil prices. External factors not applicable to Russia have weighed on Mexico’s currency, but despite the weaker peso, the country still has strong underlying fundamentals.

May 18, 2016 // 5:44PM

The price of oil has risen recently from US$44 per barrel to US$49 per barrel; however the performance of the currencies of major producers has been varied.

Despite the rise in prices, the performance of Mexico’s peso has fallen since May 5. This is in contrast with the Russian rouble, which has continued to strengthen over the same time period.

“There has been significant dispersion in the performance of oil producers, most notably between the MXN (weaker) and the RUB (stronger). Historically, both currencies are tightly linked to crude prices and without any domestic specific factors causing the divergence, it is probably unsustainable,” explained Societe General analyst Jason Daw in a recent research note.

The performance of both these currencies is closely tied to the price of oil. Caroline Bain, a Senior Commodities Economist at Capital Economics said that oil producers hedge their oil prices in advance, with different hedges causing the deviation.

It is unlikely that the performance of the peso was affected by neighbouring shale oil production in the US.

“Shale oil production has not increased with the rise in oil prices, and in fact it is currently slipping,” Bain noted.  

Kyle Cooper, a consultant at IAF advisors and ION energy said that the peso had been weak for a while, a trend which is continuing.

He added that although there were other areas of non-oil related trade between Mexico and the US, its main trading partner, fears over the outcome of the US presidential campaign alongside other factors that do not affect Russia could have an effect on Mexico, and weigh on its currency.

Despite this, Cooper noted that Mexico was unlikely to struggle to service its large quantities of dollar-denominated debt repayments, as its finances were still in good shape. “The country’s economy is in no way heading down the same route as that of Venezuela’s,” he added.

Americas Energy Currencies Russia & CIS Mexico

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