Trading forex – how does the price of oil affect these currencies?

Oil has had a rollercoaster over the last two years, sinking from all-time highs around $115 a barrel to a nadir of $26 in February. Through all this, certain currencies have exerted a strong correlation to the price of crude.


Rabobank notes that currency correlation with oil is at an all-time high. The US dollar is usually the first focus point.

Most investors know that since oil is priced in dollars, there is a pretty solid negative correlation between crude and the buck. When the dollar gains, oil falls. But as Marc Nestenius of FactSet notes in a research report, there is no direct causal link between the value of the dollar and the price of crude.

Lately there has been a strong correlation between the dollar index (-0.90), but this is not always the case. Over the last 20 years, notes FactSet, it’s averaged just -0.35. Longer term, it’s the Canadian dollar that is closer to oil prices – with a 20-year average correlation of -0.62.

Over the last two years, since oil started plummeting, we have seen a much stronger relationship between currencies and crude. As is to be expected, the closest correlations are for the currencies of oil producing nations.

Rabbobank found that out of 206 currency pairs, over 150 displayed a very powerful correlation with oil prices.

FactSet shows that the closest link is with the Russian ruble -0.97). Next is the Norwegian krone, with a two-year correlation of -0.96. Third, strangely, is the Polish zloty (-0.94). The Canadian dollar and Colombian peso tied fourth at -0.93.


Nestenius notes that the Zloty’s appearance between the ruble and krone looks completely illogical.

But he explains that it’s got to do with the relationship of the zloty to the dollar (the correlations are based on the exchange rate with the dollar, not the currencies as a standalone). 

By stripping out the direct effect of the dollar, by comparing currencies against a custom weighted index, we get a much clearer picture.

The ruble, krone and peso remain highly correlated, but the zloty slips below the 86-currency average (as does the Canadian dollar). In other words, the zloty’s apparent correlation with oil is merely a result of the very powerful USD correlation, not because Poland has become exposed to crude markets.


The ruble is the best gauge for oil. Although the FactSet data suggests this is only in the last two years, an ECB study in 2007 pointed to the direct correlation between the RUB real exchange rate and crude.

This report looked at three major oil producing nations – Saudi Arabia, Russia and Norway – and how their currencies move with the price of crude.

“In the case of Russia it is possible to establish a positive long-run relationship between the real oil price and the real exchange rate. However, we find virtually no impact of the real oil price on the real exchange rates of Norway and Saudi Arabia,” the ECB said.

Correlation is not the same as causation – a falling US dollar doesn’t necessarily mean higher oil prices. The same is even more true of the zloty. But because the likes of Russia, Canada, Norway and Saudi Arabia depend so heavily on oil revenues for their economy, there is much deep connection between crude and their currencies that may not be best expressed by forex markets alone.