Will the rise in oil prices drive the US dollar back to its "safe haven" status, but how far can this upward trend go?

The negative correlation between the US dollar and US stocks has recently reached its highest level in nearly a year, reaffirming the typical relationship between assets related to the safe-haven status of the US dollar. Data shows that since the outbreak of the war in the Middle East at the end of last month, the Bloomberg Dollar Index has risen by nearly 2%, while the S&P 500 Index has fallen by over 2%. This change has brought one of the indicators measuring the short-term correlation between the two to the lowest negative value level since early 2025. Strategists attribute this recent movement in the US dollar to its correlation with soaring oil prices - rising oil prices significantly benefit the United States, the world's largest oil-producing country. If this trend continues, it will strengthen the US dollar as a core tool for traders to hedge their exposures, a role that the US dollar has struggled to effectively play in recent months. Morgan Stanley's G10 currency strategist Andrew Waterhouse emphasized: "For large institutional investors, asset correlation is always a key factor." He further pointed out that for most of the past two weeks, "the continued significant negative correlation between the US dollar and the stock market has been evident". For many years, the movement of the US dollar and US stocks has typically displayed an inverse relationship - when demand for risk assets weakens, investors often turn to the US dollar as a safe-haven; conversely, if risk appetite returns, they may reduce their holdings of the US dollar. However, this traditional relationship underwent a significant reversal last year. Specifically, in April last year, US President Trump's introduction of comprehensive tariff policies triggered a selling wave of US assets, leading to the US dollar's worst performance in the first half of the year since the 1970s. The core driver of this return to correlation is the United States' position as the world's largest oil-producing country and the US dollar's role as the primary currency for global oil trade. The surge in WTI crude oil prices of over 40% directly boosted market demand for the US dollar. Morgan Stanley's Waterhouse emphasized: "In the G10 currency system, the US dollar is the only currency that combines safe-haven properties and deep ties to energy-exporting economies, and its strength is entirely logical." Meanwhile, the surge in oil prices has reignited market concerns about inflation, prompting investors to significantly lower their expectations for the extent of Fed rate cuts, which has created noticeable downward pressure on the stock market. Deutsche Bank strategists Parag Thatte and Binky Chadha specifically pointed out last week that the negative correlation between the S&P 500 Index and oil prices has reached "near-perfect levels", making this high degree of correlation a key indicator for current market analysis. Bob Savage, head of macro strategy at New York Bank, noted in a client report released on Monday that in addition to rising energy costs, the US dollar is also supported by US investors repatriating funds during periods of geopolitical uncertainty. However, the sustainability of the US dollar's safe-haven status remains in doubt - if oil prices quickly fall, investors may refocus on factors that were originally bearish for the US dollar, such as tariff disputes and the US fiscal deficit. Of greater concern is the risk of prolonged conflict: if geopolitical conflicts continue to keep oil prices at high levels, it may damage the momentum of US economic growth by suppressing consumption and investment channels, ultimately eroding the safe-haven value of the US dollar. Audrey Childe-Freeman and Tinh Nguyen, industry research strategists at Bloomberg, warned in a joint report: "Current price trends have fully confirmed bullish expectations for the US dollar, but caution is needed to differentiate driving factors - whether it is short-term trading behavior of short covering, or a true beginning of a sustained upward trend. This distinction is crucial for determining the future movement of the US dollar."