On oil-US exchange rate volatility relationships: An intraday analysis

The aim of this paper is to investigate the dynamics of oil price volatility by examining interactions between the oil market and the US dollar/euro exchange rate. Unlike previous related studies that focus on low frequency data and GARCH volatility measures, we use recent intraday data to measure realised volatility and to investigate the instantaneous intraday linkages between different types and proxies of oil price and US$/euro volatilities. We specify the drivers of oil price volatility through a focus on extreme US$ exchange rate movements (intraday jumps). Accordingly, we find a negative relationship between the US dollar/euro and oil returns, indicating that a US$ appreciation decreases oil price. Second, we note the presence of a volatility spillover from the US exchange market to the oil market. Interestingly, this spillover effect seems to occur through intraday jumps that take place simultaneously in both markets.