Wavering interactions between commodity futures prices and us dollar exchange rates

Lucjan T. Orlowski; Monika Sywak; Lucjan T. Orlowski; Monika Sywak

doi:10.3934/QFE.2019.2.221

Quantitative Finance and Economics

2019, Volume 3, Issue 2: 221-243. doi: 10.3934/QFE.2019.2.221

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Wavering interactions between commodity futures prices and us dollar exchange rates

Lucjan T. Orlowski ^{1
,
,},
Monika Sywak ²

1.
Department of Economics and Finance, Sacred Heart University, Fairfield, USA
2.
Department of Business and CIS, Caldwell University, Caldwell, NJ 07006, USA

Received: 28 January 2019 Accepted: 25 April 2019 Published: 30 April 2019
JEL Codes: C58, F31, G13

This paper examines the intricate impact of commodity futures settlement prices on USD exchange rates. The daily data on changes in logs of futures prices and changes in logs of US dollar in euro and USD trade weighted exchange rate are tested with Bayesian VAR, multiple breakpoint regression and two-state Markov switching. Commodities include West Texas Intermediate and Brent crude oil, as well as copper and gold. The tests imply prevalence of an inverse relationship between changes in commodity futures prices and USD exchange rates, but their interactions become positive at stressful market conditions. Strengths, statistical significance and causal interactions between commodity futures prices and USD exchange rate depend on the type of commodities and market risk conditions. The relationship between WTI and USD exchange rates has been strengthening over time. Interactions between changes in gold prices and the exchange rate are very unstable.
- commodity futures prices,
- USD exchange rates,
- multiple breakpoint regression,
- Bayesian VAR,
- Markov switching
Citation: Lucjan T. Orlowski, Monika Sywak. Wavering interactions between commodity futures prices and us dollar exchange rates[J]. Quantitative Finance and Economics, 2019, 3(2): 221-243. doi: 10.3934/QFE.2019.2.221

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Abstract

This paper examines the intricate impact of commodity futures settlement prices on USD exchange rates. The daily data on changes in logs of futures prices and changes in logs of US dollar in euro and USD trade weighted exchange rate are tested with Bayesian VAR, multiple breakpoint regression and two-state Markov switching. Commodities include West Texas Intermediate and Brent crude oil, as well as copper and gold. The tests imply prevalence of an inverse relationship between changes in commodity futures prices and USD exchange rates, but their interactions become positive at stressful market conditions. Strengths, statistical significance and causal interactions between commodity futures prices and USD exchange rate depend on the type of commodities and market risk conditions. The relationship between WTI and USD exchange rates has been strengthening over time. Interactions between changes in gold prices and the exchange rate are very unstable.

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