Institutional Insights: Societe Generale 'AUD Stay Long'
The Australian dollar has been resilient in the face of rising oil prices. The country imports roughly 83% of the crude oil it refines and gets 50% of its refined petrol from Singapore alone. Hence, despite being a major exporter of natural resources, including natural gas, the economy is vulnerable to a protracted spike in oil prices. Despite this, it has been even more resilient in the face the recent spike in oil prices than we had expected.
Our reaction a week ago, was that the size of AUD speculative longs in the FX market and the country's dependence on imported petroleum in particular, could trigger an AUD correction, even though we think it can reach higher levels in the coming months. It would seem that holders of long AUD positions have remained reluctant to part with one of their favourite trades. About the most we can point to, is that short AUD/CAD has produced a positive return since the start of the US war with Iran, but a mere 0.06% fall in AUD/USD since the end of February is very impressive.
The chart below may be one reason for this resilience – relative rates are still moving firmly in the AUD's favour, proving more support today than when AUD/USD was at 0.76 in 2022. The author suggests it is worth trying to stay long the Australian dollar given its surprising resilience in the face of rising oil prices.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!