Dollar Gets Stronger, Oil Gets Weaker

A solid piece from Bloomberg confirming what many in KC blogosphere – me included – knew about the dollar-oil connection.

Commodities dropped to the lowest in seven weeks as a stronger dollar and rising equity markets eroded the appeal of oil, gold and corn as alternative investments.

The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials fell for a second day, touching 1,527.441, the lowest since June 5. Corn was the biggest loser, dropping as much as 5 percent, and crude oil extended its slide from a record this month, while gold dropped to a two-week low.

The dollar rose to a four-week high against yen and rose against the euro as investors increased bets the Federal Reserve will raise interest rates in September. The Dow Jones Industrial Average added 3.6 percent last week, while the UBS Bloomberg index plunged 7.3 percent, the biggest slide since March. Some investors buy commodities as a hedge against inflation.

``It all has to do with the dollar, inflation and interest rates,'' said Michael K. Smith, president of T&K Futures & Options in Port St. Lucie, Florida. ``With the dollar gaining and less concern about inflation, people don't want to buy commodities anymore. People are shifting into stocks.''

Coincidence? I do not think so.