INVESTING: Oil and FX checklist
(printable)Oil prices and the price of USD and other currencies have a special relationship. Here is what some say sometimes explains how they fluctuate:
- If oil prices go up, this will be beneficial to e.g. Norway, Canada Mexico, and to their currencies
- Asia is a big importer of oil. If oil prices rises, they have to pay more, which has a negativ impact on their economy, and thus their currency.
- Invoice effect: Oil is priced in USD. If USD weakens, oil prices tend to go up. Part of reason: Oil producing nations receive oil price in USD, and need more money for their oil to maintain purchasing power.
- Petro-Dollar Recycling Effect. When oil is sold for dollars, these dollars are used (sold) to spend in fx Europe, leading the euro to increase. So: Higher oil price, weaker dollar.
- Central Banks response to higher oil prices: Higher inflation: Higher interest rates - more attractive currencies.
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