Dollar Moves in Lockstep With Oil Prices After Iran War Surge

b6xntxvwez}30t1{s(80d8{)_media_dl_3.png BloombergArticle content(Bloomberg) — The dollar and oil are trading in lockstep in the wake of the US-Iran ceasefire this week, tightening the relationship between them to near-record levels.Sign In or Create an AccountEmail AddressContinueor View more offersArticle contentA gauge that tracks the correlation between the benchmark price of US oil and Bloomberg’s dollar index over a 30-day period has spiked since early March, and is now approaching the peak last seen a year ago when President Donald Trump announced aggressive trade tariffs.Article contentWe apologize, but this video has failed to load.Try refreshing your browser, ortap here to see other videos from our team.Article contentArticle contentThe dollar index slid as much as 1.1% to a four-week low on Wednesday as news of the temporary truce sent US crude oil prices plunging by 16%. The greenback was steady Thursday as oil gained 5% amid signs that the ceasefire was fraying ahead of peace talks scheduled for Friday.Article contentTop StoriesGet the latest headlines, breaking news and columns.There was an error, please provide a valid email address.Sign UpBy signing up you consent to receive the above newsletter from Postmedia Network Inc.Thanks for signing up!A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.Article content“In this war there are no other major drivers of FX at the moment, so correlations have centered on oil,” said Noah Buffam, strategist at CIBC Capital Markets. “Risks of a breakdown in talks should keep some risk premium in the dollar.”Article contentThe dollar has several direct links to oil, which have underpinned the close correlation since early March. The US is the world’s top oil producer, with the war in Iran pushing overseas demand for its output to record levels. Abundant domestic supply means the US economy is better positioned to withstand an energy price shock. The greenback is also the currency of global crude trade.Article contentOptions markets reflect the link. Sentiment, as depicted by so-called risk reversals, turned sharply more bullish for the greenback as Brent climbed above $110. The relationship was especially clear beyond the short-term, with one-month and one-year dollar-bullish options moving closely with crude. Article contentArticle contentNews of the ceasefire prompted a partial unwinding of those bets on dollar strength, led by the one-week tenor. Still, all maturities remain well above pre-war levels, suggesting the dollar continues to reflect an oil premium. The currency has also benefited from haven flows during the market turmoil of the past six weeks. Article contentThe 14-day truce is proving fragile, with both sides accusing each other of violating the agreement. The Strait of Hormuz, a vital transit route for fuel and other shipments, has remained effectively closed since the announcement, driving Brent crude back up to about $98 a barrel on Thursday. WTI crude is approaching $100 a barrel. Article contentBut if oil prices can stabilize — even within a wider range — the correlation with the dollar “should wane,” said Peter Vassallo, portfolio manager at BNP Paribas Asset Management USA. Article content“It would take further escalations or increases in oil-price volatility for this correlation to remain high or even increase further,” Vassallo added. Article content—With assistance from Carter Johnson and Vassilis Karamanis.Article contentTrending Doritos at US$7 a bag ended up costing PepsiCo billions Retail & Marketing BYD to open 20 car dealerships in Canada this year Autos Posthaste: How the U.S. dollar stole the Canadian dollar's petrocurrency thunder News Subscriber only. Saudi Arabia’s vital East-West oil pipeline attacked after ceasefire Subscriber only Financial Times A 1,300% rally turns a tiny shipping ETF into an Iran war gauge PMN Business Share this article in your social networkCommentsYou must be logged in to join the discussion or read more comments.Create an AccountSign in Join the Conversation Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information. Doritos at US$7 a bag ended up costing PepsiCo billions Retail & Marketing BYD to open 20 car dealerships in Canada this year Autos Posthaste: How the U.S. dollar stole the Canadian dollar's petrocurrency thunder News Subscriber only. Saudi Arabia’s vital East-West oil pipeline attacked after ceasefire Subscriber only Financial Times A 1,300% rally turns a tiny shipping ETF into an Iran war gauge PMN Business