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Petrocurrency

A currency whose value is closely tied to oil, either because the country exports it in size or because oil revenues dominate its government finances.

The Canadian dollar and the Norwegian krone are the liquid examples; the Russian rouble, the Mexican peso and several Gulf currencies belong to the wider family, though the Gulf states mostly manage the link away with a currency-peg instead.

The transmission is through terms-of-trade and the fiscal account. Higher crude means more export revenue and a stronger budget position, and in floating economies the currency absorbs part of the swing. The relationship is asymmetric in practice: crashes move currencies faster than rallies.

The mirror side matters too. Japan imports nearly all its energy, so a sustained oil rally weighs on the yen through the trade balance at the same time as it supports the loonie.

Example: crude falls from $85 to $65, a 23.5% drop. USD/CAD moves from 1.3400 to 1.3850, about 3.4% of Canadian dollar weakness, roughly a seventh of the oil move.

Related: commodity-currency, loonie, terms-of-trade, current-account

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