US Dollar Continues To Climb as Oil Prices Continue to Fall

By Annie Reona | Tuesday, July 21st, 2015

oil-dollar-ratioLast Friday, the US dollar nearly reached its highest point from the last three months and is expected to continue to remain high or climb higher in the upcoming week. This is a result of the central bank speculation which is continuing to affect the currency markets. Oil prices, on the other hand, continue to drop as Royal Dutch Shell has predicted that it will take the oil market five years to recover.

Last week, the monetary policy divergence was supporting the US dollar due to a signal sent to Congress by Federal Reserve Chair Janet Yellen who implied that interests were going to rise in the upcoming year. Analysts expect that there will be time for the Fed to increase the rates before the end of the year.

On Friday, the dollar index closed at 97.86 which was a 2% gain throughout the week.

The Reserve Bank of Australia and the Bank of England recently completed their July policy meetings, neither of which resulted in any changes to their monetary policies. However, the minutes for these meetings which will be released during this week may help indicate if there will be any adjustments made in the future that may affect the monetary market.

In the past year, the Reserve Bank of Australia has already seen two cuts to their interest rates in an effort to ease the impact of the rapidly declining commodity prices which are being seen throughout Australia.  The Bank of England Governor Mark Carney, on the other hand, has recently stated that their interest rates are not likely to increase before 2016 so long as the economy forecast remains steady.

During the last week, another unexpected change in the monetary market came from the Bank of Canada who cut their interest rates for the second time in the last year. This caused their local currency to drop to a six-year low against the US dollar. It is the collapsing oil prices that have caused a severe blow to the economy throughout Canada. Analysts have reported that the Canadian economy was likely to have contracted in consecutive quarters which indicates that the Bank of Canada could still make additional cuts this year.

According to Royal Dutch Shell, oil prices will not make a rebound anytime soon. One of the oil company’s analysts predicted that oil prices will continue to be low over the next five years because the demand is significantly lower than the global supply. Royal Dutch Shell CEO Ben van Beurden has backed up this prediction by saying that the oil prices will continue in their slump unless producers begin to cut back on production levels.

Van Beuran further states that these low prices will “have big implications for exporting countries like Iran, Russia, and Venezuela.” He also adds that these prices will have a negative impact on “shale-producers in the US, and even the domestic budgets of producers in the Gulf states.”

Global Benchmark Brent crude ended at $57 per barrel on Friday where US oil ended at $51 per barrel. The futures contracts on both of these are less than half of what they were trading at in June 2014.

Published in News & Analysis

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