It's the oil that sinks the dollar not the other way

I keep listening to those reporters on TV and even some economists, politicians and fund managers insisting that the plunging dollar is the cause for the rise in oil prices. Jesus! It's the other way around. Those people cannot separate cause and effect. Oil prices rise due to high demand and limited production/capacity. Buyers of oil keep selling dollars forward to secure their price in local currency. If oil drops, the dollar will go up.

The boomerang effect is a lower dollar when stock market in the US rises, almost tick by tick sometimes. Foreign buyers of US stocks sell dollars forward when oil prices rise to hedge currency exchange risk.

The answer is for world governments to flood the market with reserves. Not to blame the dollar for their inability to solve the problem. There is nothing wrong with the dollar other than oil is priced in dollars. If oil starts being priced in euros also, euro will go down too.

Alex

 

Interesting idea. I am of another line of thought, however. I think the big hedge fund game is to sell dollars against buying treasuries. Thats a US asset neutral position effectively short dollar price.

And a levered trade at that everyone is on the same side of. December 11th should be the near term peak of oil.

 

but will they cut in december? they might just pause and let things settle down. but who knows with the fed right now

 

I wonder if that conference scheduled with China is happening around Dec 11th....

I'm as much of a permabear as anyone and I just keep pricing long date strips.

$100 oil probably kills everyone's profitability while it kills our demand. Ergo, dollar retracement while foreign markets get sold off and domestic markets are cushioned because in non us currency terms they are just so darn cheap!

 

So if the dollar is sliding because oil is rising and is denominated in dollars then wouldnt we be better off if it were priced in euros? This way no one will be selling dollars forward.

So being the world's reserve currency is actually hurting us? Hmmmm. Interesting.

 

Where's that one price thingy? Gotta be here somewhere.

 

u r totally WRONG.

first check the co relation between dollar and oil.

 

Please explain why I'm wrong. Correlation says nothing about cause and effect.

Alex

 

Exactly! That is why the Arabs want to add euros in the basket. Remember the Arabs hold dollars mainly. I think it is of the best interest of US to push that agenda. And let the Europeans run for cover after that. But I think the issue is more political than financial.

Alex

 

alex, you have a long way to go.....

the dollar was falling when oil was $8 per barrel....