Oil and GCC foreign exchange forward markets : a wavelet analysis

We examine the relationship between oil as a major export for the member countries of the Gulf Cooperation Council (GCC) and the forward levels of all GCC currencies using wavelet analysis. We find that oil and GCC forward markets have significant but weak relationships at high frequencies. We also find evidence of significant and strong relationships at low frequencies during periods of low oil prices. However, no noticeable relationship is observed during periods of rising oil prices. This could be explained by the significant concern about the negative effects of the decline in oil prices, especially with regard to liquidity and public finances.