uploads///Correlation Analysis of Crude Oil With Dollar Index

What Are Key Macroeconomic Indicators for Crude Oil?

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May. 9 2016, Published 9:29 a.m. ET

US job report missed the forecast

The US job growth number for April was lower than the forecast. In April 2016, 160,000 new jobs were added—compared to the forecast of 203,300. Fewer jobs compared to the forecast could delay the Fed’s timing for a rate hike. A delay in the rate hike timing is bearish for the dollar. It’s a positive signal for commodities. Commodities are largely denominated in the US dollar. A fall in the dollar could boost commodity prices. The US Dollar Index is a key macroeconomic indicator for crude oil as well as the commodity complex.

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US Dollar Index and crude oil

The last one-month correlation of crude oil with the US Dollar Index spot stood at 2.4% on May 6, 2016. With such a low correlation, it’s difficult to quantitatively identify how the US Dollar Index influences crude oil on a daily basis. Fundamental drivers could be the dominating drivers of crude oil prices currently—compared to the US Dollar Index. Read Why Is the US Dollar Index Limited in Driving Crude Oil Prices? to learn more about the correlation of crude oil with the US Dollar Index.

The above analysis is important for oil-weighted stocks such as Abraxas Petroleum (AXAS), Triangle Petroleum (TPLM), and Denbury Resources (DNR). The Direxion Daily Energy Bear 3X ETF (ERY), the First Trust Energy AlphaDEX ETF (FXN), the United States Brent Oil Fund (BNO), and the United States Oil Fund (USO) are also impacted by the correlation of crude oil with the US Dollar Index. In the next part of this series, we’ll look at the weather forecast and how it will impact natural gas prices.

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