oil influences currency or vice versa?

Discussion in 'Economics' started by jasonc, Dec 12, 2006.

  1. jasonc


    I am trying to understand some of the factors that cause fluctuations in oil prices and started to think about there relationship with the currency markets. I am having trouble figuring out whether it is oil prices that affect currency markets or if it is the currency moves influence oil prices. I was thinking more that short term swings in oil prices can be caused by changes in currency markets but longterm it is more fundamentals that would influence oil prices and those changes would hen influence long term changes in currency markets. I was wondering what others thought and if i am missing anything. Thanks

  2. This is a tough question. Globalization has made markets more correlated. gold/dollar, gold/euro, oil/dollar, etc. The canadian/jpy
    currency pair, for example, is correlated to oil as Canada is oil rich, and Japan has little oil and imports alot. The idea here is that cad/jpy will move up as oil moves up, and vice versa. Generally, interest rates are the 800 pound guerilla of currencies. Higher oil prices (inflationary) will move interest rates up; this is one example. Intermarket analysis by John Murphy gives a good overview of the subject. Good luck!!
  3. jasonc


    Thanks for the reply and link, the article leads me more to the thinking that oil of course has an influence on currency but only as part of the trade balances in a country. Seems that ultimately trade balances affect currencies and then also interest rates. Oil can influence interests rates but only along with other things that cause inflation. The only way i can now see currency prices influencing oil prices is the competition between two countries to buy the oil and as ones currency increases vs another that country has an advantage for buying oil and thus raises the prices for the other country.