Australian Dollar Lifted by 'Extraordinary' Natural Gas Price Rise, Forecast to Move Higher v Pound and US Dollar
The Aussie Dollar has been aided over the past 24 hours by the strong rally in natural gas prices while our studies suggest the currency should maintain a positive tenor against both the US Dollar and Pound.
- Pound to Australian Dollar exchange rate today: 1.7426
- Australian to US Dollar exchange rate today: 0.7642
The Australian Dollar put in some convincing gains against both the US Dollar and Pound following a brief stumble seen at the end of August and start of September.
The main driver ahead of the weekend appears to be the surge in natural gas prices which rose some 4% on Thursday the 9th.
Natural gas is Australia's third largest export after iron ore and coal and therefore has a large impact on the country's currency dynamics.
The move higher in natural gas comes in sympathy with the broad-based gains seen across the entire oil and gas sector.
US Crude inventories shrunk by an extraordinary 12 million barrels this week - the largest drawdown since January 1999 and confirms demand for energy is greater than many had anticipated. Markets simply did not anticipate this.
Should the complex continue to head higher we would expect the Aussie to remain supported.
"Obviously this is just one week’s worth of data and it remains to be seen in the coming weeks and months whether the trend can be sustained. For oil prices to rise significantly, we will need to see some further large drops in US oil inventories as they are still near record high levels," says Fawad Razaqzada at Forex.com.
Latest Pound / Australian Dollar Exchange Rates
  | Live: 2.0112▼ -0.24%12 Month Best:2.1645 |
*Your Bank's Retail Rate
| 1.9428 - 1.9509 |
**Independent Specialist | 1.9831 - 1.9911 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
GBP/AUD Technical Outlook: Upside Still Possible
The pair has rolled over from its early September highs and begs the question has the down-trend is resumed?
The sharp rise from the August lows, however, suggests more upside is still possible.
We may have an evolving inverse head and shoulders basing pattern on our hands, at the lows, in which case one would expect the right shoulder to now be forming – and a continuation of the current roll-over, is therefore probable, down to support at 1.7270, and then we will have the right shoulder.
A break below 1.7370 would provide confirmation.
An eventual move above the neckline, confirmed by a break above the 1.7700 level would probably see the exchange rate rise to resistance at 1.7835.
The MACD is above the zero-line denoting the asset is in an up-trend, although its pointing down.
AUD/USD Rate Gives Buy Signal
From a technical perspective, Citi maintains an “upside bias” supported by the fact that RSI has also now risen out of the oversold zone.
The AUD/USD pair had been rising in a bullish ascending channel until it broke out to the downside, however, this seemed to be just a correction and recent dollar weakness has now sent the exchange rate higher again, as if it were resuming its dominant up-trend.
The strong, long, green, Marabuzo candle on the daily chart is a sign that the up-trend is likely to extend further.
The Parabolic Sar which is represented by rows of dots under price action on the chart is also signalling more bullishness as it has switched from short to long.
The MACD has turned up and crossed back above its signal line giving a bullish buy signal as it is still above zero, denoting the bull trend is dominant.
A clear break above the R1 monthly pivot at 0.7690, confirmed by a move above 0.7710, would confirm a continuation higher to a target at 0.7750.
Improved Trade Data Aids Aussie Rally
It is not only the jump in natural gas prices that is aiding the Australian currency.
It was revealed on 8th September that Australian exports rose 3% on a month-on-month basis in July while the country's trade deficit for the rest of the world was reported at A$2.41BN in July - better than analyst forecasts for a reading of A$2.75BN.
However, there are some question marks over whether the data is really that good.
ANZ Research's Giulia Specchia notes that a surge in gold exports may be flattering:
"The trade deficit improved by significantly more than expected in July, narrowing to AUD2.4bn. This surprise improvement was driven by a AUD0.9bn spike in volatile gold exports, with most other resource exports weaker, with the notable exception of LNG"
Imports were a little weaker, where a large fall in consumer imports unwound last month’s gain.
Analysts at Citibank put most of the recent gains in the Aussie down to external drivers with AUD/USD rising thanks to the sharp weakening in August Services data in the US, which showed the index decline to its lowest level since 2010 (services account for 75% of US GDP).
The result further dashed hopes of the Fed raising interest rates in September, even bringing into question another rate hike at all this year with Citi noting:
“The USD tumbles across the board overnight as markets make a decisive shift towards December as the timing of the next fed hike.
“This follows sharply weaker US August ISM Services print (services account for roughly 75% of value added in US GDP), with the index declining to its lowest level since early 2010 accompanied by a sharp dip in key sectors (employment business activity and new orders).
“Market sentiment now appears to be falling in line with the Citi Economics call for the next Fed hike to come in December."
