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Will the US Dollar Limit the Upside for Crude Oil?

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US dollar 

The US Dollar Index rose 0.22% to 93.14 on October 16. It’s near a one-week high. The US dollar (UUP) rose due to the rise in US Treasury yields. On October 16, President Trump signaled that Stanford economist John Taylor could be the next Fed Chair. These bullish sentiments supported the US Treasury yield. Trump is expected to meet current Fed Chair Janet Yellen on Thursday, October 19.

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US dollar: Highs and lows

The US dollar hit 103.8 on January 3, 2017—the highest level in 14 years. In contrast, the US dollar (USDU) hit a low of 90.99 on September 8—the lowest level in the last 34 months.

The dollar has recovered 2.4% due to President Donald Trump’s proposed tax reforms in September 2017. The tax reforms aim to reduce taxes on US corporations and households. Secondly, the Federal Reserve may hike interest rates in December, which has also supported the US dollar. Record US stock markets (SPY)(DIA) have also helped the US dollar.

US dollar and crude oil 

Crude oil (DBO)(SCO) and US dollar prices are usually inversely related. A strong dollar makes crude oil expensive for crude oil importers. Consequently, it pressures crude oil prices. Similarly, a weak dollar supports oil (USO)(UCO) prices. Moves in oil prices impact oil producers (IYE)(VDE) like Noble Energy (NBL), Energen (EGN), and Bill Barrett (BBG).

Impact  

Traders believe the US dollar could stay firm. A strong dollar would pressure crude oil (USO)(UWT) prices. Next, we’ll analyze crude oil price action in the last 18 months.

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