Oil soars, dollar falls - experts concerned
This week has seen the Federal Reserve respond to tight global liquidity by announcing it would inject $US 200 billion into the financial system and take mortgage-backed securities as collateral.
According to Alfa Bank strategist Erik Depoy, “in many respects it resembles what the European Central Bank did a couple of months back when they injected 500 billion into the global financial system”.
Thursday has seen it slide below the 100 Yen mark, only days after the ECB sounded alarm about its euro now worth more than $US 1.50. With the Fed widely expected to cut rates significantly when it convenes next week the short term is looking all down hill for the greenback.
Commodities priced in the greenback are hitting all time highs. On Thursday gold passed $US 1,000 an ounce and crude its latest high of $US 110 per barrel. Analysts say that the dollar fall is a key factor, but in the case of oil traders are also pressuring OPEC to increase production.
“If OPEC can and they do have marginal production to bring on, it will be in their interest to bring price down. Otherwise demand will be destroyed underline the long term business prospect. If they are indeed running out of oil then allowing prices to go up is perfectly fine,” believes Ron Smith, head of research from Alfa Bank.
For Russia the spiraling oil price now means that nearly $US 1 billion per day is entering the country. However, this has a downside. It adds to inflationary pressure, and the rouble appreciation against the dollar is making sections of Russian industry less competitive.