Research On The Dollar Index Fluctuation And Its Application

Since 2000,international and domestic commodity has gone through several waves of sharp ups and downs as a "roller coaster",making a huge impact on China and even the world economy.In recent years,the fall of the international crude oil prices has led to series of consequences,for example,an overall economic weakness of many oil-exporting countries such as Russia and Venezuela,a slide of CRB index from 313.27 to the recent 154.85 points,reaching the biggest drop of 51%,and even,London gold price fell from $ 1,656.09/ounce(January 2013)to now(2015.11.05)of $1,107/ounce,33% decline.Some experts suggest that the dollar index shows a significant negative correlation withcommodity prices.Since the world economic downturn,Europe and Japan one after another adopted monetary easing,emerging economies struggled—China repeatedlycut of RRR and the benchmark rate,there are still no signs of an economic rebound.In many scholars' eyes,this phenomenon should be attributed to the strongly ascending dollar index's.Since the far-reaching impact of the dollar index,the in-depth study of dollar index and the searching on a method better than technical analysis to grasp the trend of dollar index came to be issues waiting to be solved—What are the influencing even determining factors of dollar index? What indexes can be used to do better dollar index grasping?In this paper,problems mentioned above were both theoretical analyzed and empirical analyzed.Theoretically,starting with the supply and demand of dollar,combined with the traditional theory of exchange rate determination,this paper summarized the demand of dollar in two aspects—the pace of economic development in the US,the relative rate of return on holding dollars in the international market.In those two dimensions above,we studied the factors that influence the fluctuation in dollar index and hunt for indexes that can grasp the trend of dollar index more accurately.In terms of US economic development,we selected several macroeconomic indicators of US,such as the US GDP,CPI and non-farm payroll,to do the comparative analysis with the dollar index.On the other hand,in terms of the relative rate of return on holding dollars,we chose the key interest rate and longer term bond yield of US and its biggest competitor country—the UK,to do the comparative study.In these ways we qualitatively confirm the theory above.Then,using the GRA model come up by Professor Deng Julong,we did the analysis of grey correlated degree between the dollar index and the index group,which contains Dow Industrial index(A),the Fed funds rate(B),Real yield of 10 year treasury bonds in the US(C),FTSE Europe(D),Overnight inter-bank rate in euro zone(E),long-term government bond yield of European union(27 countries)(F),the difference between the rising range of A and D,the difference between B and E,C and F.Thus,we quantitatively proved the high correlation between the index group and the dollar index.By comparing the predicting results of the two method——technical analysis and index group analysis,validated the advantage and effect of the method use of technical analysis methods and the index group analysis method to predict the trend of the dollar index results,verified the advantage and effect of the method in this paper.At the last part of the paper,after a detail analysis of the influence that the dollar index has on commodity price,and a conclusion which pointed out the different impact the dollar index has on CRB and different kind of commodity price,we established a cross-species arbitrage confirmatory examples based on the analysis about dollar index trend,which may can provide theoretical basis and technical support for arbitrage investors.