Why A Strong Dollar Will Kill Oil’s Monster Rally
It was a pretty dull day, and to be honest, not a whole happened that seems overly exciting. But I have been thinking a bit about what a stronger dollar means to Oil, and how a stronger dollar could stop Oil’s rise in its track. In fact, since 1986 the correlation between the two is -0.76, a very strong inverse correlated, with an R^2 of 0.57.
The Dollar Impact
Just how much power does the dollar hold over the future direction of Oil? A lot! In fact, From May 1, 2002, through July 1, 2008, the price of Oil rose from by nearly five times from around $28 per barrel to $140, while the dollar index fell by almost 37 percent.
From April of 2014 until the end of 2016, the dollar climbed by nearly 28 percent, while the price of oil fell by almost 46 percent.
If not for the financial crisis in 2008, the correlation would probably even be higher.
As of right now, the dollar index has one more hurdle to clear around 94 to 95, before it has it goes on a clear path back towards the 100 level.
The dollar impact can go far beyond the price of oil, it is a drag on companies doing business abroad. First, it makes our products more expensive, and then the conversion back from local currency back to dollars has a negative impact.
Right now, tracking the dollar is going to be very important, to figure out where the price of Oil goes.
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