Oil

A lot of misinformation exists on the Internet about the sup-
posed relationship between oil and the USD or other curren-
cies, such as CAD or JPY. The idea is that, because some
countries are oil producers, their currencies are positively (or
negatively) affected by increases (or decreases) in the price of
oil. If the country is an importer of oil (and which countries
aren’t today?), the theory goes, its currency will be hurt (or
helped) by higher (or lower) oil prices.
Correlation studies show no appreciable relationships to that
effect, especially in the short run, which is where most cur-
rency trading is focused. When there is a long-term relation-
ship, it’s as evident against the USD as much as, or more than,
any individual currency, whether an importer or exporter of
black gold.
The best way to look at oil is as an inflation input and as a lim-
iting factor on overall economic growth. The higher the price
of oil, the higher inflation is likely to be and the slower an
economy is likely to grow. The lower the price of oil, the lower
inflationary pressures are likely (but not necessarily) to be.
We like to factor changes in the price of oil into our inflation
and growth expectations, and then draw conclusions about
the course of the USD from them. Above all, oil is just one
input among many.