Munich Personal RePEc Archive

Commodity Currencies and Causality: Some High-Frequency Evidence

Ahmed, Rashad (2019): Commodity Currencies and Causality: Some High-Frequency Evidence.

This is the latest version of this item.

[img]
Preview
PDF
MPRA_paper_96855.pdf

Download (968kB) | Preview
[img]
Preview
PDF
MPRA_paper_98319.pdf

Download (1MB) | Preview

Abstract

I investigate the link between economic fundamentals and exchange rate adjustment to commodity price fluctuations. I overcome the traditional issue of simultaneity by exploiting the September 14, 2019 drone attack on two Saudi Arabian refineries as a natural experiment. This unanticipated event caused the largest 1-day global crude oil price shock in over a decade. Using high-frequency exchange rate data for 30 countries, I link the cross-section of currency movements around the event to country-specific economic and financial fundamentals. Crude export and import intensities were associated with appreciation (depreciation). Additionally, countries with higher policy interest rates and weaker financial positions experienced greater currency depreciation while safe haven currencies appreciated, consistent with 'risk-off' sentiment triggering carry trades to unwind. I also find that across currencies, estimated (pre-event) crude oil and VIX betas are tightly associated with oil-related and financial fundamentals, respectively. Therefore, exchange rate adjustment around the drone attack can also be explained by currency risk factors.

Available Versions of this Item

  • Commodity Currencies and Causality: Some High-Frequency Evidence. (deposited 27 Jan 2020 05:03) [Currently Displayed]
UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.