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It used to be that the U.S. dollar and oil moved in opposite directions.
That made sense when the U.S. was a net consumer of energy. But now that the U.S. is a net exporter, the relationship has flipped.
This chart from State Street demonstrates that changed relationship. It plots, in black, the 1998 to August 2019 monthly values of the U.S. real effective exchange rate index, vs. the oil price, and then in green, the September 2019 to June 2023 observations.
Now, as oil
CL00,
rises, so does the dollar
DXY,
or at least that’s the broader trend.
Archive: Why the U.S. dollar doesn’t always act like a haven when geopolitical tensions rise (Jan. 6, 2020)
Pointing to another chart show rising armed conflicts, State Street says all large energy producers have oil policy interwoven with other foreign policy objectives. In practice, this means the OPEC+ grouping’s supply is less elastic than before 2020. Combined with more inelastic U.S. supply, it suggests “energy prices are asymmetrically tilted upwards.”
See: Can gasoline prices keep falling after OPEC+ oil output cuts? What drivers need to know.
The bank’s broader 2024 message: “Investors plotting a path through the coming year must do so amid sub-trend economic growth, a volatile geopolitical backdrop, and worries about the ability of central banks to manage the transition from a monetary policy built to bring down inflation to one that limits the recession risks.”
Read the full article here
