Dividends and Oil’s bull run snaps inverse US dollar link

In the past there has been a link between the US dollar and oil prices, when one goes up the other goes down, for good reason. Although the US produces oil, it also imports oil and to buy oil needs US dollars. There there is a natural relationship between the two.

In an article by Ahmad Ghaddar and Saikat Chatterjee of Reuters, since March something different has been happening. The US dollar and oil prices are moving in the same direction since late March and experts believe the link to persist given tight oil market and broader risks in the economy.

This time around higher oil prices are threatening the world’s economic outlook and the US is seen as a safe haven reserve currency of choice among investors.

According to Callum Macpherson, Investec head of commodities, generally oil tracks closely to the S&P 500 but that correlation has disappeared completely.

Ehsan Khoman, head of emerging markets research at MUFG said, historically energy crises and inflationary shocks were centered on the US, but this time they are centered on Europe and that has met the US dollar is appreciating.

Linking to dividend paying stocks, when investing there tends to be rules or normal patterns, when those normal patterns are out of whack it takes the market time to adjust to the new normal. Then new rules come along. The higher US dollar will mean global companies will have more foreign exchange risks, but they will continue to make money. The rule that profitable companies are a good investment never fall, just ensure you know why they are profitable.

There are more questions than answers, till the next time – to raising questions.

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