The US Dollar has weakened on growing concerns that middle east Gulf Oil trading countries might opt for a basket of currencies instead of US Dollar. This is based on a supposedly secret meeting of the oil trading countries with the officials outside the region to discuss dropping the dollar for oil trade. A change from dollar to other currencies has both economic and political aspect; it is less likely that this would happen quickly as there is lack of consensus on econo-political issues such as the Gulf Monetary Union.
Rate hike by Australia indicating greater risk appetite, has contributed to weakening of the US dollar by lifting the commodity currencies also contributing to weakening of the US dollar. Gold has also showed an upward trend in its prices in recent few months. Note that all this is happening with backdrop of an agreement between China and Russia to use their domestic currencies in bilateral trade at the dollar’s expense.
Our View: The ensuing speculation about replacement of dollar for oil trade, however economically strong it might be, will not have much impact due to the US’s strong hold in the political map of the world. This seems a possibility only if the US economy remains weak for more a year or two and thus start losing its political hold on the world issues.