The relationship between crude oil price and US dollar index

As a world currency, the appreciation and depreciation of US dollar are subject to the market economy to a certain extent, that is, it is determined by the supply and demand of money. As a non renewable energy, crude oil is the power and foundation of world economic development, and there is still no other effective energy to replace it. So, is there a relationship between the US dollar and oil? If so, what factors are subconsciously leading?

The origin of the relationship between us dollar and crude oil

After the outbreak of the Second World War, the world economic system with Europe as the center was on the verge of collapse with France, Germany and Britain suffering heavy losses in the war. On the other hand, the United States is not only unscathed, but also benefited a lot from the war. At the Bretton Woods system conference, he set the price of gold, a traditional inflation resistant precious metal, at US $35 per ounce with the posture of "dominating the world", thus mastering the world trade system. However, since the 1970s, due to the spread of the economic crisis, the US dollar began to depreciate significantly, while the United States was unable to fulfill the promise made at the previous meeting, that is, to exchange gold. However, the settlement currency of gold between governments and major banks is still located in the US dollar, which makes the exchange rate of the US dollar and the trend of gold price have a negative correlation. Once the US dollar, as the foreign exchange reserve of various countries, depreciates, it will make the governments of various countries sell US dollars to exchange for gold with value preservation, thus making the gold price rise.

Under such circumstances, the fixed exchange rate between us dollar and gold can no longer be implemented. In 1975, the "self-centered" United States found a relationship that was in line with its own interests, that is, it was linked with crude oil, so it held many consultations with OPEC (including Iraq, Iran, Saudi Arabia, Venezuela and other major crude oil exporting countries) and finally reached an agreement on crude oil trade in US dollars. In other words, the US dollar has become the currency of international crude oil pricing and settlement. The rise of crude oil price will increase the demand for us dollar payment in the market, thus making the nominal exchange rate of the United States rise. At the same time, the United States is also the world's largest consumer of crude oil, so the real exchange rate of the dollar will also rise. This leads to the following situations in the market: buying US dollars → buying crude oil → increasing demand for crude oil payment → rising exchange rate. In fact, the rising crude oil price has brought pressure to the rise of the US dollar exchange rate, that is, the rise of crude oil price → the increase of operating costs of all walks of life → the rise of other commodity prices → the increase of consumption cost of residents → the reduction of consumer demand → the decline of consumer confidence index → the slowdown of the US economy Signs of recession → decline of exchange rate → depreciation of US dollar.

The depreciation of the US dollar can promote US exports and stimulate investment activities in the market to a certain extent, but it reduces the willingness of the US dollar denominated crude oil producers to increase production to curb oil prices and bring higher oil pricesThe devaluation of the US dollar → the fall of the price of crude oil in US dollars → the reduction of output in the crude oil producing countries (the market demand has not decreased) → the supply of crude oil exceeds the demand → the rise of oil price → the stimulation of speculation in the market → the increase of oil price → the strengthening of the exchange rate of the US dollar.For this reason, the relationship between the US dollar and crude oil inadvertently started a similar "seesaw" negative correlation journey.

Today's dollar and crude oil

Compared with the above trend chart of euro / dollar and crude oil price, we can find that: in early February 2008, both crude oil price and euro / US dollar exchange rate both fell; since then, when crude oil began to form a bull, and all-out upward, the euro / dollar was not willing to fall behind, the moving average system was long, and the exchange rate continued to rise for more than a month; Until nearly April, crude oil had been reorganized for a period of time, and the euro / dollar exchange rate also entered the rest period; but when the crude oil was ready to go and soared into the sky, the euro / dollar exchange rate also began to move forward and set a new high. Wave after wave, wave after wave, the price of crude oil and the exchange rate of euro / dollar are always in the state of "accompanying each other".

In the middle of July, driven by the high crude oil price, the exchange rate of the US dollar fell sharply. The huge losses of "Freddie Mac" and "Fannie Mae" gave a heavy blow to the deeply hurt U.S. economy, and the U.S. dollar was once again reduced to the situation of being sold by a large margin. Just as the market is speculating whether the US economy can "recover from extinction", the fall of crude oil price makes the US dollar exchange rate return to the original range again, and a life and death duel is launched against the euro. It seems that, before the oil price "wild horse" has not run out of control, the rebound of the dollar may still have a chance of survival.

Looking at the current U.S. dollar and crude oil, the "one after another" relationship between the two has been relatively fixed, but we can not ignore that, as a non renewable resource, crude oil will one day run out, and whether the dollar, which is complementary to it, will stay at the base or peak of the seesaw with the disappearance of "rivals"? Similarly, if the dollar continues to depreciate, the original Oil producers are no longer subject to an agreement with the United States. If they use currencies such as the euro to price crude oil, the US dollar will probably be replaced by other currencies in the world. For this reason, if the US dollar wants to continue to be bowed by tens of thousands of people, it must take effective measures, on the one hand, to revive the sluggish American economy and make it more brilliant; on the other hand, the United States must understand the principle of "foresight", and look for a new resource to replace it when the crude oil is not really exhausted, just as crude oil replaced gold in 1975.

 

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