The relationship between oil price and foreign exchange price


When we invest, we should not only study the market we operate, but also know more about other related markets, so as to grasp all kinds of information and trends as soon as possible and make better choices. There is a certain correlation between the price of oil and the price of foreign exchange. Let's take a look at it.

Petroleum is a very important raw material for production. As we all know, oil, as a kind of fuel, is an essential thing in the process of automobile operation. However, in industrial production such as tire production and automobile production, oil is also one of the important energy sources. So if the price of oil goes up, it will be more expensive for industrial countries to import raw materials. This increase in cost is reflected in output, which is a sharp decrease in output.

What will happen if output drops sharply? First of all, a decrease in output means that factories need fewer workers, which leads to an increase in unemployment in a country. Secondly, the decrease of production also means that people have to spend the same money to buy less things, and then the price will rise. This is the double blow of inflation and unemployment. If you don't have a personal feeling about this, you can take a look at the United States in the 1970s, when OPEC restricted the exploration and production of oil to raise oil prices, so the whole United States fell into a relatively confused and turbulent mood.

In this mood, people lose confidence in their own country and capital flows out, which can make the dollar depreciate. If applied to the foreign exchange market, it is the appreciation of other countries' currencies relative to the US dollar.

Therefore, the relationship between oil price and foreign exchange is: the rise of oil price, the depreciation of the US dollar, and the appreciation of other currencies relative to the US dollar; conversely, if the oil price decreases, the US dollar will appreciate and the US dollar will depreciate against the currencies of other countries. You can apply this law to foreign exchange futures to increase your odds and profitability.

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