Dollar and Oil corelation

Question

A weak dollar helped boost oil prices earlier this year, because dollar-denominated commodities are often used as hedges against inflation and a falling U.S. currency. Can someone thrown more light on this statement

Answer 1

Sellers of commodities are not interested in the nominal price of the sale but the real price, the price in goods and services.  As such, the shift of any currency, dollar, pound, euro, or yen, for example, results in local commodity prices changing, even if the real price remains unchanged.  So if $1 buys E1 worth of services today, but tomorrow it takes $1.50 to buy E1 worth of services, then to the extent the seller of the commodity uses euros, it will increase the price to $1.50 so it can still purchase E1 worth of services and goods.  So as the dollar fell, oil prices increased.  This was not the sole cause of the rise in oil prices, but it was a very strong cause.

Answer 2

interesting question

Answer 3

The correlation isn't as good as many seem to think.  However, higher oil means a higher US trade deficit which would make the dollar weaker.  

There is also a liquidity issue.  Money moves out of the US stock, bond, and bubble houses markets and into commodities.  Higher commodity prices make investment in commodity producing banana republics more attractive than investment in the US, attracting money that would otherwise go to the US.

However, a weak dollar makes US imports more expensive and reduce their demand, which should reduce their price.