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US Dollar Index Will Impact Crude Oil Futures

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Apr. 19 2018, Updated 8:08 a.m. ET

US Dollar Index  

The US Dollar Index fell ~0.1% to 89.5 on April 10–17, 2018. WTI crude oil prices increased ~1.5% on April 10–17, 2018. The depreciating US Dollar Index helped oil prices during this period.

The ProShares Ultra Bloomberg Crude Oil ETF (UCO) increased ~2.5% to $28.7 on April 10–17, 2018. UCO targets to provide twice the daily return of an index of WTI futures contracts. The PowerShares DB Oil Fund (DBO) rose 1.4% to $11.44 on April 10–17, 2018. DBO aims to follow the performance of the DBIQ Optimum Yield Crude Oil Index Excess Return.

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US dollar’s highs and lows  

The US Dollar Index hit 88.25 on February 16, 2018—the lowest level since December 2014. WTI oil prices reached $61.68 per barrel on February 16, 2018.

The US Dollar Index hit 103.8 on January 3, 2017—the highest level in 14 years. WTI crude oil prices hit $52.33 per barrel on January 3, 2017.

The Power Shares DB US Dollar Bullish ETF (UUP) aims to follow the performance the US Dollar Index. UUP was flat at $23.46 on April 17, 2018, 2018, while the US dollar rose ~0.1% on the same day.

Impact 

The US Dollar Index depreciated ~9.8% in 2017, while WTI oil prices increased ~12.4% during the same period. The weak US Dollar Index partly supported oil prices. The US Dollar Index averaged 96.6 in 2017. The index is expected to trade around 88.7 by the end of 2018.

The Fed is expected to hike US interest rates four times in 2018, which could be bullish for the US Dollar Index. The improving economy outside the US could see the US Dollar Index lag compared to its peers. Major central banks could increase interest rates in 2018. The expectation of a weak US Dollar Index could be bullish for oil prices.

Next, we’ll discuss some crude oil price forecasts.

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