Sustained oil drop may put USD under big pressure
Oct 15 (Reuters) -A sustained drop in the price of oil which could lead U.S. interest rates down faster or further than currently expected could put the dollar under great pressure.
There is good reason to expect oil to slide, as crude prices have been underpinned for several years mainly by restrictions to supply and producers are planning to increase output.
If this happens then crude prices, which have fallen during a period when conflicts have threatened supply, could drop substantially. If they do then there could be much less inflation to concern central banks, and most of the major central banks are hoping to lower interest rates.
Brent Crude has dropped around $30/bbl in the past year to test the 100-monthly moving average at $69.66 in September and again this month. Should oil break below the 100-MMA then it should bring an end to the period where many traders have eyed, and hedged for, prices within the rough $70-100/bbl extremes unfolding since the pandemic.
A bigger drop would undermine the currencies of big producers like the United States, at a time when traders have also reduced their expectations for the amount of U.S. easing and pared bets against the dollar. As a result traders are far less prepared for a drop that may result from lower oil prices.
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Crude oil https://tmsnrt.rs/3NxpUct
(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)
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