Oil price slump puts pressure on commodity-linked currencies, Asian shares

Oil prices plummeted to five-year lows on Tuesday, pressuring commodity-linked currencies and most Asian shares as a bout of risk aversion rippled through world markets.

The urge for safety gave a rare boost to the Japanese yen which edged higher with particularly large gains on the troubled Australian and New Zealand dollars.

Much of the action was in oil where a glut of supply has seen the fuel's prices fall for almost six months now, so pressuring energy stocks and commodity-related assets globally.

Oil prices are likely to remain around US $65 a barrel for the next six to seven months until the global economy recovers or the Organization of Petroleum Exporting Countries (OPEC) changes its production policy, the head of Kuwait's state oil company said.

Brent crude prices fell by 86 cents to US $65.33 a barrel, while US crude futures dipped another 70 cents to US $62.35. Both had already tumbled over 4 per cent on Monday on expectations that a deepening oil glut would keep prices under pressure into 2015.

While falling energy prices are a boon for consumer spending power in most parts of the world, it was bad news for resource stocks like Australia's Santos which fell almost 8 per cent.

The pain spread across the main Australian share index which dipped 1.5 per cent, while MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.8 per cent to a seven-week trough.

Japan's Nikkei fell 0.7 per cent, but that follows a run of hefty gains which took it to the highest since mid-2007.

Chinese shares have also been on a tear and Tuesday was no different as the CSI300 index powered up another 3 per cent to peaks last visited in April 2011. It has now climbed by a third in just three weeks.

On Monday, Dow Jones had fallen 0.59 per cent, while the S&P 500 was down 0.73 per cent and the Nasdaq 0.84 per cent.

In currency markets, the yen benefited as nervous speculators cut back on short positions. The dollar faded to 120.19 yen, and away from Monday's high of 121.86, while the euro retreated to 148.00.

The Australian dollar was a major loser, reflecting the country's position as a major commodity exporter, and slid a full yen to 99.11.

Not helping risk appetite was a Wall Street Journal report that US Federal Reserve officials were seriously considering dropping an assurance that short-term interest rates will stay near zero for a 'considerable time'.

Such a move would be taken as a sign the US central bank was on target to start raising interest rates around the middle of 2015, a view that has gained great traction since last week's surprisingly strong payrolls report.

Yields on two-year Treasury debt have spiked to highs not seen since April 2011 while the whole yield curve has flattened markedly as investors wager US Fed action will keep inflation low over the long run.

The lack of inflationary pressure combined with a rising US dollar kept gold on the back foot. Spot prices were stuck at US $1,200 on Tuesday after shedding a couple of bucks the previous session.

(Reuters)