The dollar falls by excess in the inventories of crude oil of the United States, affecting the price of the American currency in the Forex market.
After a week that had started a little weak for the dollar, due to the rise of the Chinese Yuan and other risk currencies, on Wednesday the dollar received its strongest thrust. And after a tense calm, the greenback seems to face again an unstable panorama.
Dollar / Crude Ratio
Oil prices directly affect the valuation of the dollar. Well, the United States is one of the main players in the world of oil worldwide. Well, it has an economy that increasingly appeals to energy as a motor. Therefore, it is much more susceptible to the effects caused by the price of oil compared to other economies.
In this way, when the United States takes economic measures, directly related to the import or export of oil for the country, the results are directly reflected in the price of the dollar.
Part of these economic measures, which the American government took to stabilize the reopening of its economy, was the anticipated purchase of 5.7M in barrels of oil. This to cover the expenses incurred in the measures taken to restrain the Covid-19.
And thus offset the demand for fuel in the United States. As gasoline and distillate inventories fell last week, according to a report by the Energy Information Administration.
In addition, a slight rebound in fuel demand is expected during the summer driving season. More now that the decline in coronavirus-led state blockades has begun in some parts of the United States.
The reason why the price of the dollar falls in the Forex market with these sudden changes in the crude oil stock, is based on the fact that if one country reduces its oil production, another will fill the gap and lose market share.
Impact on the American currency
The West Texas Intermediate Index (WTI) provides the highest reference regarding the behavior of crude oil in the United States. This index remained in fairly stable ranges until this Tuesday.
The WTI benchmark was trading on Wednesday morning prior to data release at $ 40.71 per barrel. However, crude oil prices fell directly after launch, with WTI threatening to drop below $ 40 a barrel again.
Oil price increases have been limited in the past week. Reinforced by the strong performance of OPEC with production cuts and the decrease in the number of daily deaths attributable to coronavirus in the United States.
However, there are pressures due to the increasing number of new cases of coronavirus contagion in the American country, which could greatly affect the recovery in demand for oil, which we are just beginning to see.
Why these results in the price of the dollar?
The uncertainty caused by the decline in oil prices causes financial and monetary instability. This can lead to changes in production levels and price volatility.
The dollar index, which measures the performance of the greenback against a basket of rival currencies, fell 0.5% to 96.52. The euro rose 0.6% against the US currency, at $ 1,1377.
At the same time, this situation is hitting the US dollar market hardest, and it is reflected in the currency markets and investors are betting on other currencies in light of this situation.
In summary, there is an excess supply of oil that directly affects the international financial market, especially in the United States, and therefore, this drop in the price of the dollar was observed.