The dollar is starting to act like an oil currency

The relationship between the US dollar and crude oil has changed again, reflecting America's growing role in the global oil industry.

When oil prices fall, the greenback is traditionally not one of the more vulnerable currencies. And when oil does well, that doesn't necessarily translate to a strong dollar.

That's because the dollar is not a petrocurrency, the term given to currencies of countries like Canada that export oil and rely on its revenues for economic growth.

"The USD has started to trade like an oil currency shifting away from a previous relationship seeing the USD and oil in an inverse relationship," wrote Hans Redeker, the global head of FX Strategy at Morgan Stanley Investment Management, in a note on Tuesday.

In other words, the dollar has become positively correlated to the dollar, Redeker and his team observed.

"This new relationship makes sense," they wrote.

The most important reason according to Redeker is that the US has become the new swing producer of oil, meaning that its production levels hold the most sway over global oil prices. That's a role that the Organization of Petroleum Exporting Countries, led by Saudi Arabia, predominantly played until the US shale boom occurred.

Oil prices have been unable to rally far above $50 per barrel amid signs that American output and inventories remain high. That's clashing head-on with an agreement some OPEC members and non-members made in November to lower output by about 1.2 million barrels a day. Shale producers, after being forced to cut production and costs by the oil crash, continue to demand rigs from service providers to increase output.

Another reason why oil matters more to the dollar is that imports have decreased while exports have increased, reducing the related trade deficit. After his inauguration, President Donald Trump promised to reduce America's reliance on imports from the Organization of Petroleum Exporting Countries. Almost two-thirds of US imports in 2016 were from Saudi Arabia, according to Bloomberg.

If the US continues to grow the share of exports over imports, oil revenues will play a greater role in its economy and matter more to the dollar.