Oslo: As the petrocurrencies of the world break their historic link with oil, the greenback is building a relationship with the commodity that it isn’t supposed to have.
Crude oil’s more than 9 per cent surge since October 25 has been mirrored by a 1.4 per cent advance in the dollar against major world currencies, widening the pair’s 90-day correlation to the most in almost two years. Meanwhile, the link is getting weaker between oil and the currencies of major oil producers such as Russia and Canada.
Since the greenback is the reference currency for oil trades, the commodity price tends to fall when the dollar strengthens, creating an inverse relationship, but fundamental drivers have sent the two on separate and converging paths.
The US currency has been spurred by positive economic data and expectations of tax reform, while the crude’s recent surge has been driven, in part, by a supply threat posed by the shakeup of Saudi Arabia’s ruling elite.
“You have a rare instance at the moment of oil and the dollar trading in the same direction,” said Neil Mellor, a senior currency strategist at BNY Mellon Corp.
“That, in part, is because of what’s happening to oil, which is being driven by uncertainty in the Middle East. You can have a period where supply factors are more dominant and may take the dollar and what it’s doing out of the equation.”
The Russian rouble’s 30-day correlation with Brent crude dropped into negative territory on Friday, while the Canadian dollar and Norwegian krone’s 90-day link with the commodity is at the lowest level since 2014.
The boom in US crude production has spurred suggestions the greenback could trade like a petrocurrency on a structural basis. A shift in America’s status from oil consumer to major producer has the potential to upend global capital flows, Pavilion Global Markets Ltd said in July.
