The dollar falls due to excess inventories of crude oil in the united States, with repercussions on the price of the american currency in the Forex market.
After a week that had started a little weak for the dollar, because of the winding of the Chinese Yuan and other currencies risk, on Wednesday, the dollar receives its death-blow more strong. And then a tense calm, the green ticket seems to confront again to an unsteady picture.
Oil prices directly affect the valuation of the dollar. Therefore, the united States is one of the main actors in the field of oil worldwide. Therefore, has an economy that increasingly appeals more to energy as a motor. Therefore, it is much more susceptible to effects caused by the price of oil in comparison to other economies.
This way, when America takes economic measures, directly related to the import or export of oil to the country, the results you see reflected directly in the price of the dollar.
Part of these economic measures, the american government took to stabilize the re-opening of its economy, was the advance purchase of 5.7 M barrels of oil. This is to defray the costs incurred in the measures taken to restrain the Covid-19.
And compensate for as well, the demand for fuel in the united States. Since, the inventories of gasoline and distillates fell last week, according to a report from the Energy Information Administration.
In addition, it is expected a slight upturn of the demandade fuel during the season of summer driving. More now, that began the decline of locks state led by the coronavirus, 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 stock of crude oil, and is based on the fact that if a country reduces its oil production, another will fill the space and will lose market share.
Impact on the american currency
The index for West Texas Intermediate (WTI) provides the greatest reference with regard to the behavior of the crude oil in the united States. This index is maintained in ranges fairly stable until this Tuesday.
The benchmark WTI was trading Wednesday morning before the release of the data to $ 40.71 per barrel. However, crude prices fell directly after the launch, with WTI threatening to fall back below $ 40 per barrel.
The dollar falls due to excess inventories of crude oil in the united States. This has an impact on the Forex market. Source: Oil Price
The increases in the price of oil has been limited during the last week. Reinforced by the strong performance of the OPEC cuts production and the decrease in the number of deaths per day attributable to the coronavirus in the united States.
However, there are pressures from the growing number of new cases of infection of coronaviruses in the south american country, which could greatly affect the recovery of the demand for oil, that we’re just beginning to see.
Why are these results in the price of the dollar?
The uncertainty that causes the decline in oil prices cause financial instability and monetary policy. Which can lead to changes in production levels and the volatility of prices.
The dollar index, which measures the performance of the greenback against a basket of currencies rivals, fell 0.5% to 96.52. The euro rose 0.6% versus the u.s. currency, to 1.1337 dollars.
The dollar falls due to excess of oil in american inventories. Source: Yahoo Finances
At the same time, this situation strikes with greater force in the dollar market in the U.S. AND is reflected in the currency markets and investors betting on other currencies in this situation.
In summary, there is an excess supply of oil which directly affects the international financial market, especially in the united States, and therefore, it was noted this fall in the price of the dollar.