How do fluctuations in the U.S. dollar's value impact commodity prices?

by Houghton and Atkeson   07/01/08
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Q: How do fluctuations in the U.S. dollar's value impact commodity prices?

A: Crude oil futures, although traded globally, are priced in U.S. dollars per barrel. As the value of the dollar falls versus other currencies, the price per barrel of oil rises regardless of any other demand/supply forces at work.

Additionally, crude and other physical commodities such as gold are often used as a hedge against inflation, as they hold their value as prices increase. The combination of increased inflation expectations and a lower exchange rate for the dollar has recently prompted investors to sell dollars and buy commodities.

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