Prague Economic Papers 2012, 21(2):220-232 | DOI: 10.18267/j.pep.420

The Link Between the Brent Crude Oil Price and the US Dollar Exchange Rate

Filip Novotný
Filip.Novotny@cnb.cz, Czech National Bank, External Economic Relations Division, Na Příkopě 28, Prague 1, 11503, Czech Republic.

Growth in the intensity of the inverse relationship between the US dollar exchange rate and the Brent crude oil price has been observed over the last decade. This may be linked, among other things, to the growing role of commodities as an alternative investment instrument at times of excess liquidity and low interest rates on global markets. This analysis examines monthly data from January 1982 to September 2010. Since 2002 the direction of the relationship in the Granger causality sense has been from the dollar exchange rate to the oil price. A weakening of the dollar of 1% causes the Brent oil price to rise by 2.1%. The contrary movements in the Brent oil price and the dollar exchange rate are a factor dampening the impact of sharp fluctuations in the dollar price of oil on "non-dollar" economies, including the Czech Republic. This dampening effect was clearly visible in the period of sharp oil price growth in 2007 and 2008.

Keywords: interest rates, commodity prices, excess liquidity, exchange rate movements, financial markets, speculative demand
JEL classification: F31, G15

Published: January 1, 2012  Show citation

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Novotný, F. (2012). The Link Between the Brent Crude Oil Price and the US Dollar Exchange Rate. Prague Economic Papers, 21(2), 220-232. doi: 10.18267/j.pep.420
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