Oil and US dollar exchange rate dependence: a detrended cross-correlation approach

Abstract

This paper examines the relationship between oil prices and the US dollar exchange rate using detrended crosscorrelation analysis. For a wide set of currencies in the periods before and since the onset of the recent global financial crisis,wecharacterized the oil price–exchange rate relationship at different time scales and documented two main findings. First, the cross-correlation analysis indicated that oil price–exchange rate correlations were negative and low, having in general lower values for longer time scales. Second, negative dependence between oil and the US dollar increased after the onset of the global financial crisis for all time scales, thereby providing evidence of both contagion and interdependence. This empirical evidence has important implications for monetary and fiscal policies, asset management and risk assessment.