Revisiting The €Œpure†Oil-Exchange Co-Movement From A Time-Domain Perspective

In this paper, we examine the differences between CNY and other major currencies in coherence and the lead–lag relationship across the different time horizons to clarify whether crude oil, monetary factors, or both drive the movement of exchange rates. We employ partial and multiple wavelet coherence analyses to examine oil-exchange co-movement by excluding the influence of Federal Reserve System (FED) monetary policy — namely, the stance and uncertainty of monetary policy — and the difference in domestic and foreign monetary policy rates. Overall, we find that monetary easing by the FED is a major factor driving the co-movement. Specifically, after excluding the possible effects of monetary policy factors, the movement of the Euro exhibits the strongest and the Japanese yen the weakest dependence on crude oil price changes, whereas the British pound shows a moderate dependence. By contrast, the CNY shows strong co-movement with the crude oil price only over the long term implying the low degree of integration with the global markets. Our empirical results provide meaningful information for investors and policymakers.