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Shifts in oil prices have far reaching implications for FX markets as well. Firstly, the
correlation between oil prices and the dollar remains as strong as ever. Secondly, beyond the broad outperformance of commodity currencies, there are clear leaders
and laggards among commodity exporters. Interestingly, the leaders in commodity currency space are non-oil currencies. ZAR, AUD and BRL have strengthened not just relative to G3 FX, but also relative to other commodity currencies. There are different reasons for this outperformance. The ZAR price action reflects a correction from very cheap levels and a better profile in terms of capital inflows, while the BRL and AUD trades reflect the relative resilience of the local economies and the links to the China rebound.

CAD has underperformed the rest of the commodity currencies, on the back of a lower dollar beta and higher exposure to the US slowdown.

The RUB is more puzzling. Despite oil price strength we have not experienced a pure RUB outperformance outside the broad dollar trade. EURRUB is more or less flat and AUDRUB is at multi year highs. In terms of flows, RUB positions are long but not stretched or extreme, while there has been a build-up in external debt which may mostly reflect some technical adjustments rather than pure inflow. Overall, it is likely that it is mostly dollar trends that continue to determine $/RUB. Lower oil prices are clearly a risk for the RUB but probably at much lower levels than here.