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Old 11-15-2009, 09:24 AM
Franc Tireur Franc Tireur is offline
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Dollar trouble, oil's bubble could derail recovery

The weakness in the U.S. dollar risks inflating a bubble in the oil market, which could threaten consumer spending and potentially cause a double dip recession.

The greenback's decline this year has been lauded as good for America as it benefits earnings, stimulates exports and helps rebalance the U.S. economy. But runaway oil prices could be the Achilles' heel to the thesis that sees only a benign impact of a weak dollar.

This year, when the dollar has been weak, oil has been strong; a weaker dollar supports oil because dollar-priced commodities become cheaper for buyers using other currencies. The inverse relationship between the dollar and crude has been remarkably tight: the 200-day correlation coefficient between the dollar index and oil is -0.94, Reuters data showed.

In some respects, this is a repeat of last year when a weak dollar, along with low interest rates and growth in energy-intensive Asia, drove oil to a record near $150 a barrel, which contributed to a deep global recession.

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