Question

What impact does oil have on the FOREX Market, elaborate?

Answer 1

In the foreign exchange market, exchange rates are often predicated on the health of a country's economy. If the economy is robust and growing, the exchange rates for their currency reflect that in higher value. If the economy is going down, the exchange rate for their currency against most other currencies also stumbles. The following makes sense:

• The currency of countries that produce and export oil will rise in value.
• The currency of countries that import most of their oil and depend on it for their exports will drop in relative value.
• The most profitable trades will involve a country that exports oil versus a country that depends on oil.

Economies that need to import their supplies of oil can be adversely affected by a slowing in the oil supply and the resultant rise in price, conversely, countries that are in a position to export the product will appreciate the resultant rise in prices.With this strong dependant on oil, a country’s currency can rise and fall with any change in the supply or price of oil. A decrease in Crude Oil Production leads to a rise in oil prices, which is terrible for the economy and currency. As fuels become expensive, currency value depreciates. It creates inflationary conditions within the economy. All Oil dependent industries like textile, chemical, medicine industries increase the cost of their end-products to compensate for the price increase. Gasoline, Petrol, and Other Crude Oil end-products become less affordable.