Are low oil prices good for the dollar?

Could someone with more knowledge than myself weigh in on this subject?

Absolutely yes. It's because US is the largest Oil Consumer in the world.

Manda

That's not necessarily true because Japan imports a higher percentage of its oil than anyone but their currecny is weakening.

High oil prices over the past 2 years have been completely fake - nothing to do with supply and demand. A bunch of hedge funds have been buying oil futures and now they've decided to sell. This is good for the dollar because hedge funds are moving their money out of oil into US stocks which creates a demand for dollars.

Generally it is good, yes. Oil contributes to the price of pretty much everything. Oil goes to make electricity which runs factories that make the products you consume, it is used to ship those products to the stores you buy them in, etc. When the price of oil goes down, a lot of things become cheaper to do. So, a net importer of oil benefits. A net exporter like Venezuela, however, is directly hurt by oil prices.

If the US economy is benefited, many US investment vehicles (stocks) often become more attractive.

That's an extremely shallow analysis, and probably not applicable across the board (what is?), but will get you started.

Yes and No,

the yes has been replied above.

the no: As much of the primary economy drives on oil, it makes up a pretty decent chunk of the cost price of many goods produced in the US.
So there is such thing as oil related inflation. If oil prices are high, consumer goods tend to be more expensive, as the production process is more costly.
It seems as the relation is far fetched, but really shouldn't be neglected.
The same goes if oil prices are low, which softens oil related inflation in consumer & producer prices.

Lower inflation rates lead to lower interest rates, which isn't good for the price of the local currency. (assuming that Fed's rate decisions are still the most influental currency price drivers)

Matt

All the arguments like "low oil prices are good for the dollar because they're good for the US economy" are invalid because low oil prices are good for every developed country except maybe Canada and Norway (oil exporters). So yes it may be good for the US economy but it's also good for the Japanese and German economies so why would it push the dollar up against the Yen and Euro?

Ok, I presented the analysis I did to show ONE relationship between oil and the dollar. In reality, the relationship is extremely complex with all sorts of factors which affect the correlation in varying ways from year to year.

The oil trade was and still is conducted in dollars. So, if the price is in dollars, the price of oil is actually subject to the exchange rate. So, the price of oil could remain the same IN DOLLARS, but in Euros it would cost more if the dollar appreciated against the euro, and it would cost less for most of the Eurozone if the Euro appreciated. So, that's one relationship between oil and the dollar that nobody has discussed.

An interesting aside was that this factor lead to the creation of the eurodollar, which you can trade through CME contracts. The USSR was paid in dollars for its oil exports, but didn't want to put them in a US bank because it feared that the US government could, at any time, freeze its oil profits. So, European banks accepted the dollars, creating a new asset class called Eurodollars, now defined as USD's held in a non-US bank.

Up until 2004, the correlation between oil and the dollar was positive, but since 2004, the correlation between the dollar and oil has been negative. Nobody is quite sure yet why it's happening, but one possible factor has been the emergence of China as a major oil buyer.

This just scratches the surface. Professors at prestigious universities are studying the new correlation like mad, trying to determine its cause. Seriously, just follow shorter term fundamentals and good technicals and you should be fine.

As was said Eurodollars are US Dollars deposited in banks outside the US. Although Russia did fear freezing of their assets by our government, that was long before they ever became a exporter of Oil basically in the 90's. The CME started trading eurodollar futures in the 70's.

Cheaper oil imports lower the trade deficit.

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the crude oil as an effect on usd ,in an inveselyproportional way,which mean the higher the crude oil price the weaker the USD,and the lower the crude oil price the stronger the USD.I.E ALL I KNOW BUDDY