Well, people who are familiar with Forex and have been into forex trading, know that many of the most important currency trading pairs rise and fall based on the price of oil.
The price of barrel of oil has been a leading factor as well as indicator of the world economy for years now. Based on past trends and current market position experts are predicting that that it is time for change yet again. The relation between the price of oil and the economy of quite a few countries are based on several facts.
To understand how oil prices and the forex market are related, let us understand one thing; that higher oil price applies brakes on over all consumers spending.
Let us take this discussion a little further to understand it more clearly- we know that the major source of oil for the industrialized countries is petroleum based. Thus the price of various goods produced, to a great extent depends upon the price of a barrel of oil.
If the oil prices shoot up, the production and supply prices for most consumer goods will also shoot up. As a result of this, the expenses of individual consumers will automatically rise as they will have to shell out more towards meeting their very basic expenses like, fueling vehicles and heating homes. The net result thus will see a downward swing in the economy of the country and lowered forex rate in currency trading market until such time that it hits a rallying point which will trigger the economy to re-start on an upward trend.
Factors that affect oil pricing could include one or more of the following; the vagaries of the weather, world politics and the actual capacity to meet the demand.
It has been observed that the currency of countries that produce & export oil will rise in value. When value of currency rises in forex market the environment results in robust economy. Similarly the value of currency of those countries which import most of their oil requirements will drop in value. And it will have an adverse impact on the forex market.
We can conclude that when Oil Prices go up, the economy of the countries having an abundance of oil will improve, the value of their currency will improve in forex market. Likewise, when the oil prices hits a low (which in real life seems like a far fetched dream) the countries supplying oil to other countries suffer loss, their currency suffers a loss in forex market and this will impact their economy adversely.
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