Commodity currencies slumped on Monday while the safe-haven yen soared after major oil producers failed to agree on an output freeze, sending oil prices tumbling anew.
A plan for OPEC and non-OPEC producers deal to freeze oil production fell apart on Sunday after Saudi Arabia demanded that Iran join in, despite calls on Riyadh to save the agreement and help prop up crude prices.
“There was some speculation ahead of this weekend’s summit that an agreement to freeze crude oil production could be reached,” analysts at Commonwealth Bank said.
The failure to secure a deal unsettled markets. U.S. crude futures (CLc1) were last down 4.8%, while Brent futures (LCOc1) dropped about 4.4%.
Investors rushed to the safe-haven yen, sending it to three-year highs against the euro. The latest move means the euro has given back the bulk of the gains made against the yen since the Bank of Japan launched its massive asset buying program three years ago.
The outcome of the meeting of G20 officials in Washington last week, and falls in Japanese equities on concerns about the economic impact from the deadly earthquakes in southern Japan, are also negative for the dollar against the yen, said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.
“Intervention in the yen has effectively become difficult,” Murata said, referring to comments from U.S. Treasury Secretary Jack Lew late last week.
The United States offered a cool response to concerns voiced by Tokyo that the yen’s gains are too sharp and may justify intervention, with Lew saying on Friday that he did not see any disorderly moves in the currency market.
Murata at Brown Brothers Harriman added that weakness in Tokyo shares can erode the risk tolerance of Japanese institutional investors and make them more cautious about overseas investment.