The Essence of Relationships between the Crude Oil Market and Foreign Currencies Market Based on a Study of Key Currencies

Abstract

Structural changes occurring in the crude oil market have stimulated the emergence of hypotheses suggesting that the relationship between prices of this raw material and the US dollar exchange rate can gradually become similar to that observed between oil prices and exchange rates of the currencies of the countries whose revenues from the export of this resource are a significant part of their current account balance. The purpose of this study was to determine and evaluate the time-varying dependence between oil prices and the exchange rate of the US dollar in the context of the same relationship for the Chinese, European, Japanese, Saudi, and Russian currencies. The results of our analyses implicate that a negative correlation between the variables in question grows stronger in time periods preceding global shocks and during thereof. The dominance of the USD in the crude oil market is reflected in similar characteristics of the correlations of the currencies of other countries, such as China, countries of the Euro area, or Japan. As for countries exporting crude oil, the situation varies. The results of our research suggest the lack of a stable relationships between prices of crude oil and currency exchange rates. It is also impossible to observe a long-term, unequivocal tendency of the currencies of oil exporting countries being positively correlated with oil prices. Russia was the closest to this situation. In Saudi Arabia, a positive correlation emerged during moments of crisis.

Time-varying causality between oil price and exchange rate in five ASEAN economies

“…The causal relationship between international OPR and EXR has significant implications for profitability in the petroleum, transportation, industrial, and food industries (Szturo et al 2021 ). The instabilities in the OPR may change the EXR differently for an oil-importing country than for an oil-exporting country (Golub 1983a , b ).…”

The Macroeconomic Results of Diligent Resource Revenues Management: The Norwegian Case

“…Maitah et al [28] add that while in the period between 2000 and 2014 the Russian currency experienced significant appreciation, it was the inflations' differences and not oil revenues that caused this development. This is also strengthened by Szturo et al [29] who suggest that it is impossible to find a long-term stable positive correlation between oil prices and exchange rates of oil-exporting countries. More specifically Habib and Kalamova [30] conclude that there is no positive long-run relationship between oil prices and the Norwegian real exchange rate and this can be attributed to foreign investments and diversification policies.…”

Risk Measure between Exchange Rate and Oil Price during Crises: Evidence from Oil-Importing and Oil-Exporting Countries

“…There is substantial notice in analyzing the dependence structure among the oil market and exchange market in oil-importing and oil-exporting countries. In fact, by transferring income from oil imports to oil exports, the oil price impacts the country's wealth through a change in the terms of trade and the way exchange rates are impacted (Szturo et al 2021).…”