Has COVID-19 intensified the oil price–exchange rate nexus?

Abstract

This paper extends the existing empirical literature by investigating whether the COVID19 crisis has strengthened the dynamic relationships between oil price and exchange rate. We find significant breaks in the relationships wherein a common break is detected around the COVID-19 outbreak period. Of note, the interactions between the two markets intensified since the outbreak of the COVID-19 pandemic. Overall, our findings imply that the investors and policymakers are taking stock of the valuable information from the unanticipated occurrence of the COVID-19 pandemic. Thus, diversification in the form of portfolio switches towards foreign currency-denominated assets may be effective in the case of a depreciation of the domestic currency.