Lower oil prices provide a boost to JPY and other Asian importer currencies - AmpGFX

Weaker oil prices are probably contributing to lower global yields and lower inflation expectations, according to the research team at Amplifying Global FX Capital. 

Key Quotes

“Low bond yields appear to be providing support for the JPY.  It may also be supporting other Asian oil importing currencies; KRW, TWD, INR.  The low yield environment is adding further support for high yielding EM currencies.”

“Considering the supply dynamics in the oil market, it appears there is a risk of further oil price declines.  This might continue to support Asian oil importer and higher yielding currencies.”

“The US has become a major swing producer in the oil market.  A key question is how quickly will its producers turn off the tap again in prices fall too far?  Is the recent slowing in US production already a sign of this response?”

“While in past cycles, lower oil prices were seen as bullish for the US economy, boosting consumer spending power. In recent years, it appears that the energy production sector in the US has been more important for the overall US economic outlook.  Business investment in the US has been boosted since late last year due to a recovery in the energy sector.  Manufacturing surveys picked up sharply in energy intensive regions in the last year.  However, in April/May, these surveys have ebbed.   If oil prices were to continue to fall it might dampen the US economic outlook and contribute to a weaker USD and lower US yields.”