Oil and the Direction of the Dollar
The inverse relationship between the price of oil and the dollar is a long-standing market mantra, but recent fluctuations suggest this correlation is shifting from negative to positive.
By Eduardo Coccaro, Strategy Analyst
The existence of an inverse relationship between the price of oil and the dollar is an old market mantra that has proven to be correctfor most of recent history. Nevertheless, recent fluctuations in the commodity’s price and the US currency suggest that this relationship is becoming less intense, and possibly going from a negative correlation to a positive one. In this week's article, we investigate what could be behind this development and its potential ramifications.
In recent decades, the dollar and the price of oil generally demonstrated opposite movements. During this period, the vast majority of transactions on the global oil market have been denominated in dollars. Thus, when there is a depreciation of the US dollar, buyers need more dollars to purchase a barrel of oil, and vice versa.