Currencies of major oil exporting nations such as the Canadian dollar and the Norwegian crown fell on Tuesday as crude prices hovered near 7-year lows and which are likely to muddy the water for global growth and inflation prospects.
Growth-linked currencies like the Australian dollar also remained on the defensive after Chinese trade data for November did little to soothe concerns about China's economic slowdown.
With lower oil prices likely to add to global deflationary concerns and Chinese data doing little to lift sentiment, risk appetite remained fragile with stocks under pressure and safe-haven currencies like the yen and the low-yielding euro doing well.
The Canadian currency fell sharply with the US dollar rising 0.2 percent against the Canadian dollar to C$1.3531 . That was the US dollar's strongest level since mid-2004.
Similarly the Norwegian crown fell a six-week low against the euro in London trade. The euro rose 0.5 per cent to hit a high of 9.43 crowns.
OPEC's inability to agree on a production ceiling last Friday meant that supply will continue to depress oil prices. The decision gave investors the green light to sell crude and currencies of oil exporters such as Canada and Norway.
"If you are looking to play weak oil prices you would want to sell the Canadian dollar and the Norwegian crown," said Jeremy Stretch, head of currency strategy at CIBC World Markets. "With oil prices falling and some even talking about oil falling to $30 a barrel, revenues for these countries will take a beating and hence their currencies will remain under pressure."
Crude oil futures on Tuesday remained close to near 7-year lows with Brent futures at around $41 a barrel. US crude , meanwhile, was trading at $37.82 . On Monday, they tumbled 6 per cent and touched their lowest levels since February 2009.
"The decline in oil prices...will not be a one-night trade. Anticipate further downward pressure on oil prices, bond yields and commodity currencies," said Richard Grace, chief currency and rates strategist at Commonwealth Bank of Australia.
"With no major US economic data until US retail sales on Friday, commodity price themes will drive trading this week."
The Australian dollar fell 0.6 per cent to $0.7220 as this week's tumble in oil prices weighed broadly on commodity currencies.