As oil fell for six straight months in the second half of 2014, plunging 47% to post its biggest decline since the 2008-09 crisis, the reaction in energy-dependent currencies has yet to unravel. The worst performing currencies so far have been the Russian ruble, down 43%, followed by the Norwegian krone and Mexican peso at -16% and -12% respectively.
The year ahead looks to be one of change for U.S. monetary policy, and change is often painful. Memories of the “taper tantrum” of 2013, when former Fed Chairman Ben Bernanke’s hints of a scale-down of large-scale asset purchases caused sharp spikes in bond yields and mortgage interest rates, remain fresh on the minds of Federal Reserve policymakers.
The recent dramatic drop in crude oil prices has been blamed on Saudi Arabia and OPEC trying to take a shot at U.S. shale oil producers. With its recent decision not to cut output and Iraqi crude shipments expected to increase to a record level the real question is: Can the members of OPEC even afford to cut output because of this drop?