Is the dollar driving oil prices, or?

Conventional wisdom on it’s head, that’s always interesting..

Goldman arguing the oilprice is driving the dollar down, not the other way around..

Goldman’s Currie Says Oil Drives Dollar Down, Not Vice Versa
By Juan Pablo Spinetto and Alexander Kwiatkowski

Nov. 4 (Bloomberg) — Crude oil, which has risen 80 percent this year, is causing the U.S. dollar to weaken, driving metals and other commodities higher, according to Jeffrey Currie, head of commodity research at Goldman Sachs Group Inc.

While oil has risen, the U.S. currency has weakened, leading to speculation that the dollar’s depreciation is driving investors to buy oil as an inflation hedge, thereby pushing up the price of crude.

“I would argue the other way,” Currie said in an interview yesterday in London. “I would argue that higher oil prices drive the dollar down and then the weaker dollar drives the metals and soft commodities up.”

The U.S. currency dropped to the lowest in more than a year against the euro on Oct. 26, while the dollar index, an indication of the international value of the currency, has lost 6.4 percent this year. Gold for immediate delivery has climbed 24 percent to a record this year while sugar is up 70 percent.

“Oil represents 40 to 50 percent of the U.S. current account deficit, so a higher oil price represents an outflow of dollars that pushes the currency lower,” Currie said in the interview, after attending a Chatham House conference on food security.

Goldman Sachs estimates that oil will reach $85 a barrel by the end of the year on Chinese demand for diesel, and $95 within 12 months time. Crude oil for December delivery traded at $80.35 a barrel, up 0.9 percent, on the New York Mercantile Exchange at 10:48 a.m. London time.

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Other’s see glimpses of decoupling

Today in Commodities: Decoupling for a Day, Or a New Trend?
Matthew Bradbard

Dollar up commodities down, stocks up oil up, stocks down, Treasuries up… well, not today. Be wary of the decoupling as new relationships may be forming.

We are thankful we took oil shorts off yesterday for clients, albeit at a small loss being prices were higher by $1.25 today as of this post. Natural gas is higher by 2%, clients were able to buy the January $5.50/6.25 spreads recommended yesterday at slightly better levels today paying $1800/per.

Sugar looks to be starting another leg up, gaining almost 2 cents in the last 4 sessions. We have light long exposure and will be shopping ways to add length for clients. Mixed results in the other softs, no standouts. Agriculture was well bid today; our clients’ exposure includes long corn and long KCBOT wheat/ short CBOT wheat via a spread.

Silver and gold were convincingly higher in today’s sessions. Gold clearly broke out to new highs on Central bank buying. Call spreads in April is the vehicle of choice though we prefer silver. We bit the bullet and bought most of our clients May $19/22 call spreads today. For straight out futures buy 30/50 cent pullbacks. Middle of the road trade one could sell out of the money calls and buy futures. $16.60 should support pullbacks on the December contract; resistance is seen at the 20 day moving average at $17.30 followed by $18 and then $20.

Clients were buyers of June 10′ Euro-dollar puts today. We were able to get more February calls bought today for clients. We continue to like buying intra-day setbacks in live cattle. We may be shopping some future spreads, stay tuned.

RBA raised rates 0.25% today to 3.50%. D-day with FOMC tomorrow and then ECB & BoE Thursday. Expect violent moves in forex. Most likely we will be selling rallies in the Cable and Euro but not sure at what levels??