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US Dollar Is near a 10-Week High, Could Upset Crude Oil Bulls

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Oct. 10 2017, Updated 2:06 p.m. ET

US dollar

The US Dollar Index fell 0.1% to 93.55 on October 9, 2017. However, it rose almost 1.1% last week. The US dollar (UUP) is near a ten-week high.

The US dollar rose last week due to better-than-expected US manufacturing in September 2017—a 13-year high. The S&P 500 (SPY), Dow Jones Industrial Average Index (DIA), and NASDAQ (QQQ) hit a record last week, which also supported the US dollar.

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US dollar and President Trump 

The US dollar (USDU) hit a low of 90.99 on September 8, 2017—the lowest level since January 2015. The dollar has risen almost 3% due to President Trump’s proposed tax reforms in September 2017. The tax reforms aim to reduce the taxes on US corporations and households.

US dollar and the Fed

The Fed plans to hike interest rates for the third time this year, which also supported the US dollar. The Fed might hike the interest rates in December 2017. CME Group’s FedWatch estimates that there’s an 88% chance that the Fed will hike the rates in December 2017. However, the US dollar’s upside could be limited due to geopolitical tensions between the US and North Korea. 

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US dollar and crude oil  

The US dollar and crude oil (UWT) (DWT) prices are usually inversely related. The US dollar rose 1.1% last week. However, US crude prices fell 2.3% last week. An appreciating dollar makes crude oil expensive for crude oil importers. As a result, it weighs on crude oil prices and vice versa.

Impact 

Expectations of a strong dollar could weigh on crude oil (DBO) (SCO) prices. Lower crude oil prices have a negative impact on oil producers (XES) (OIH) like Apache (APA), Hess (HES), and Bonanza Creek Energy (BCEI).

In the next part of this series, we’ll analyze how crude oil performed in the last 18 months.

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