Thursday, July 24, 2008
Correlation Between Oil, Commodities & USD
hei Dali You conclude that dollar will be weakening. But oil is dropping, resulting in dollar strengthening. How you justify your analysis?
Comments: My thesis on dollar weakening has nothing to do with oil. For too long oil has been rising on the back of a weaker USD as most commodities are priced in USD. This is the speculators mantra, that commodities deserve to go higher because dollar is weakening as they are priced in USD. That has only some truth in that statement, which has been overplayed for what its worth to the benfit of speculators in commodities. Naturally as the oil is starting to fall along with other commodities, the reverse correlation will hold for a while.
My reckoning on a weaker USD going forward has a lot to do with the bailouts necessary to be undertaken by the Treasury and The Fed (read below). Do not be blinkered by knee jerk reactions - such as this, and the recent sell down in CPO (which has quite different fundamentals to oil). The USD will resume its downtrend once the heat goes off commodities and people start to refocus on the credit bailouts and the strong likelihood of lower interest rates going forward by the Fed.
p/s photos: Aum Patcharapa Chaichua