NYMex 5
Traders on the New York Mercantile Exchange. Reuters

The U.S.-Iran pact curbing Iran’s nuclear capabilities has had an interesting impact on currencies, allowing them to diverge from their traditional correlation to monetary policy by first influencing oil prices, according to a note on Tuesday from French bank Crédit Agricole.

The U.S. dollar rallied against almost all of the G-10 currencies but declined against emerging market currencies.

“The price action displayed an interesting shift away from the monetary policy outlook toward broader macro trends related to the sensitivity to oil prices,” wrote foreign exchange strategist Mark McCormick. “The outlook for oil importers and exporters terms of trade is likely the driver behind the knee-jerk market reaction to the nuclear deal."

Crude oil exporters performed weakly, partly because booming U.S. shale gas production may drive an energy oversupply in the near future.

More-expensive oil helps commodity exporters and increases the demand for their currency, the currency in which oil is sold. That in turn helps reduce the trade deficit of the exporting country. Conversely, cheaper oil benefits commodity importers, whose trade deficit will also decline as import costs fall.

“Among the best performers on the day were INR [Indian rupee], TRY [Turkish lira] and INR [sic] while Asian equities outperformed, which suggests that the lower oil prices provided a brief respite for oil importers,” wrote McCormick. “Alternatively, the weakest performers were NOK [Norwegian kroner], MXN [Mexican peso], CAD [Canadian dollar] and RUB [Russian ruble] – all currencies that commodity exporters.”

He added, “The reaction may offer a script for long-term trends in FX rates if commodity prices continue to trend lower.”

Initial expectations that the Iran deal would lead to cheaper crude oil were overturned by the end of day on Monday, the Wall Street Journal reports. Although traders first pushed oil prices down on Monday, prices later recovered on concerns about a diplomatic solution pulling through.

Crude oil opened at $94.21 per barrel on New York’s Mercantile exchange on Tuesday morning. Prices hit $95.5 per barrel over the past weekend.