Traders interested in commodities can notice a slight increase in the price of oil. Recent events can explain the growing sentiment towards black gold in the market.
Tight Connections With Strong USD
Recent FED decisions regarding the U.S. Dollar heavily impact almost every market. It includes adverse outcomes on cryptocurrency prices, such as the recent fall of Bitcoin. What does it look like in terms of commodities such as oil?
A strong dollar shouldn’t support the growth of commodity prices. Yet, oil prices rose by about ten percent in the last three weeks. Recent FED policy that focuses on strengthening the U.S. currency didn’t impact commodity prices. How did that happen?
Geopolitical Tensions
It is no secret that black gold isn’t available everywhere. That’s why, especially in commodities and metals markets, geopolitics plays an essential role in shaping prices.
Currently, two major oil exporters are in the Middle of war actions. The Russian aggression in the Ukraine has been destabilizing the commodities market for more than two years. Moreover, the growing tensions between Israel and Hezbollah affect the whole Middle East, which is extremely rich in fossil fuels.
The potential fear of sudden break of supply chains from the Middle Eastern countries brings uncertainty to the investors, eventually leading to the rise of oil demand. Moreover, analysts point out that tourists will travel way more than last year, especially in Europe and Eastern Asia.
Other Assets Linked To Oil
Factors impacting oil prices indirectly influence other assets’ prices. One of the most important examples in the forex market is the USDCAD currency pair.
Both factors – FED’s hawkish stance and geopolitical tensions – affect this currency pair. For those who forgot, Canada is a significant oil exporter, so the potential changes in commodity prices can heavily influence the Canadian Dollar.
As a result, the rise of oil prices and FED’s recent actions resulted in a relatively stable USDCAD rate. This example shows that every trade needs a complex approach and the analysis of various factors that may impact its price changes.
