US Dollar benefits from rising Oil price – Commerzbank

FXStreet Insights Team FXStreet

The decision of the OPEC+ countries to reduce the Oil production has caused Oil prices to jump. Within the G10 universe it was mainly the US Dollar that benefitted. Why? Ulrich Leuchtmann, Head of FX and Commodity Research at Commerzbank explains the USD reaction.

“Dollar dominance” is an economic concept not an accounting concept

“If US energy production becomes more valuable because in other places (in the OPEC countries) production is falling, Oil production in the US becomes a more profitable business and attracts capital and labor. In that sense everything else the US produces also becomes ‘more valuable’.”

“The burger in New York is more valuable because it has to be produced despite the fact that those frying it could get more lucrative jobs on the Oil fields and despite the fact that those providing the capital to set up the shop could just as easily invest in shale Oil firms. That makes the burger in New York more valuable than the same burger in Hamburg, Milan or Tokyo. If this change is not reflected exclusively by the USD price of burgers in New York rising (and the Fed will certainly try to prevent that!) the USD has to appreciate, bringing the relative valuation of US/German/Italian/ Japanese Burgers in line with these new fundamentals.”

“That is why the Dollar is currently appreciating and not because the Oil price on your screen is quoted in US Dollar.”

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FXStreet Insights Team

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