Crude oil below $69 is now offering even stronger fundamental support for the $US.
And it’s not impossible cash flow issues of member nations may be causing ‘cheating’ on OPEC quotas
that would ultimately show up in lower Saudi production as they try to hold price. The Saudis are currently
at about 8 million bpd, and the rest of opec could probably add 2 million bpd in production if it wanted to.
That would bring Saudi production down to a dangerously low 6 million bpd, where a drop in world crude
demand due to substitutions and output stagnation could be very difficult to match with production cuts.
The US is a large importer of crude- lower prices make dollars harder to get over seas.
And purchasing power parity already overwhelmingly favors the dollar, and there is no
domestic US inflation of consequence to reverse that, especially with now falling energy prices.
Yes, it is sometimes that simple.
Shifts in portfolio preferences can still push the dollar down but the ‘trade flows’ are the stronger force longer term.
Rising dollar = reduced S&P earnings due to translations of foreign profits and less competitive exports
The weak US consumer personal income kept low by the 0 rate policy and ‘over taxation)
will keep a lid on imports even with lower import prices.
Falling gold will quash the ‘Fed printing money’ inflation myth and reverse prices driven up by precautionary
‘inflation hedge’ allocations.
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