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5 May 2016
FX and oil correlation - Rabobank
We are all oil analysts now. This mantra has been stated time and time again of late given the close relationship between oil and asset prices across markets.
Key Quotes:
"Of course, this theme is not new but the question of how long it will last remains key. Many currencies have seen oil emerge as the biggest driver of price action and for FX, the price of the black stuff is particularly important for those countries who are key players in that space.
On these pages we use a framework that should be familiar to regular readers, namely looking at a wide range of currency pairs and their correlation to moves in oil prices.
Of course, correlation does not imply causation but for many currencies the relationship is intuitively clear. Countries heavily reliant on oil production for exports and revenues are of course more sensitive to shifts in oil prices but so too are those who are heavy importers of oil with their currencies showing a clear inverse relationship.
We have used this framework before in the quest to examine just how broad-based FX moves had become from a "risk-on, risk-off" perspective; we analysed this in the past through the proxy of the global equities and the VIX ‘fear’ index."
Key Quotes:
"Of course, this theme is not new but the question of how long it will last remains key. Many currencies have seen oil emerge as the biggest driver of price action and for FX, the price of the black stuff is particularly important for those countries who are key players in that space.
On these pages we use a framework that should be familiar to regular readers, namely looking at a wide range of currency pairs and their correlation to moves in oil prices.
Of course, correlation does not imply causation but for many currencies the relationship is intuitively clear. Countries heavily reliant on oil production for exports and revenues are of course more sensitive to shifts in oil prices but so too are those who are heavy importers of oil with their currencies showing a clear inverse relationship.
We have used this framework before in the quest to examine just how broad-based FX moves had become from a "risk-on, risk-off" perspective; we analysed this in the past through the proxy of the global equities and the VIX ‘fear’ index."