$100 oil – what would it mean for the USD and AUD?

AUD/USD positively correlated to oil prices more often than not.

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  • Brent oil prices recently reached their highest levels since November 2014 after OPEC spurned President Trump’s demand to pump more oil.
  • Several factors are currently combining to generate predictions oil could head back to $100 or higher, including the approaching reimposition of US sanctions on Iranian oil exports, and the ongoing decline in Venezuelan oil output.
  • Stressing our USD fair value model which includes oil suggests the USD should fall, by more than 5%.
  • This indicates a higher AUD/USD, but how we get there matters too. In the event of a swift rise to $100 in oil, then at least initially the likely major deterioration in risk sentiment would dominate, hurting the AUD/USD alongside safe haven USD demand.

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