US Dollar Index
The US Dollar Index rose ~0.2% to ~94.5 on July 31. The Power Shares DB US Dollar Bullish ETF (UUP) seeks to track the US Dollar Index’s performance. UUP rose 0.2% to $24.98 on July 31.
September WTI oil futures fell 2% to $68.76 per barrel on the same day. The appreciating US Dollar Index would have also pressured oil prices on July 31. In Part 1 and Part 2, we discussed the other bearish factors impacting oil.
Meanwhile, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) rose ~0.02% to $43.02 on July 31. XOP seeks to follow the performance of the S&P Oil & Gas Exploration & Production Select Industry Index.
Range Resources (RRC), Tellurian (TELL), and Cabot Oil & Gas (COG) rose ~5.9%, ~3.7%, and ~3.4, respectively, on July 31. These stocks were among the top percentage gainers in XOP’s portfolio on the same day. These stocks account for ~3.6% of XOP’s holdings.
On July 31, the US Dollar Index was 1% below its 11-month high of ~95.5 hit on June 28. A trade war could make US imports more expensive, which could increase US inflation and interest rates and support the US Dollar Index. The stronger dollar could make oil prices more expensive for oil importers, which could reduce their demand and pressure international oil prices.
The Fed started its two-day meeting on July 31. The Fed is expected to keep US interest rates unchanged. There’s 95% possibility of the Fed increasing US interest rates in September. The Fed is expected to increase the US interest rates two more times in 2018, which could be bullish for the US Dollar Index. Expectations of a strong US Dollar Index could pressure oil prices.
However, an improving economy outside the US could see the US Dollar Index lag against its peers. Other major central banks could also increase interest rates in 2018, which could support other currencies against the US dollar.
Next, we’ll discuss OPEC’s crude oil production.