US Dollar Recovers from a 13-Month Low

The US Dollar Index rose 0.77% to 93.7 on August 4, 2017. It’s rose ~0.8% last week. The US dollar rose due to the better-than-expected rise in US unemployment data. The U.S. Department of Labor reported that US non-farm payrolls rose by 209,000 jobs in July 2017. A Reuters survey showed that US non-farm payrolls would have risen by 183,000 jobs in July 2017. The US average hourly earnings rose to 0.3% in July 2017—compared to 0.2% in June 2017.

Short covering also supported the US dollar on August 4, 2017. The US dollar had the first weekly gain in the last four weeks.

The PowerShares DB US Dollar Bullish ETF (UUP) follows the US dollar’s performance. It rose 0.87% to $24.23 on August 4, 2017. It has fallen 8.43% YTD (year-to-date). Likewise, the US dollar has fallen ~9.0% YTD.

The US dollar fell due to the following:

• President Trump’s inability to deliver tax subsidies and fiscal stimulus
• sluggish wage growth and inflation in June 2017
• doubts whether the Fed will hike US interest rates again in 2017

US dollar and crude oil are inversely related. A strong US dollar makes crude oil (IEZ) (SCO) (PXI) expensive for oil importers. As a result, crude oil (XLE) (XOP) prices fall.

Lower crude oil prices have a negative impact on oil and gas producers such as Carrizo Oil & Gas (CRZO), Chevron (CVX), and Denbury Resources (DNR).

The US Dollar Index hit a high of 103.8, the highest level in 14 years, on January 3, 2017. In contrast, the US dollar hit 92.7 on July 31, 2017—the lowest level in 13 months.

Expectations of a weak dollar in 2H17 could help crude oil (RYE) (VDE) (USO) prices. Higher crude oil prices could have a positive impact on oil producers such as Carrizo Oil & Gas and Denbury Resources.

In the next part of this series, we’ll analyze whether crude oil prices would rise or fall this week.