Natural Gas Price Surges on Weaker US Dollar and Upcoming US Inflation Data

Natural Gas
  • Natural gas price (XNG/USD) is rebounding and hovering around R43.44, reaching an intraday high.
  • Weaker US Dollar and market optimism contribute to the price recovery.
  • Anticipation builds around the release of US inflation numbers for May and the upcoming Federal Reserve (Fed) monetary policy meeting.

The price of natural gas (XNG/USD) is showing strength, hovering around R43,44 and reaching an intraday high, as it rebounds from a one-week low. This positive movement is influenced by several factors, including the softer US Dollar and the market’s cautious optimism ahead of key events such as the release of US inflation numbers for May and the upcoming Federal Reserve (Fed) monetary policy meeting.

The US Dollar Index (DXY), which measures the greenback against six major currencies, is experiencing a 0.20% intraday loss, signaling a pause in its recent two-day uptrend. This decline reflects the market’s negative sentiment towards the Federal Open Market Committee (FOMC) meeting scheduled for Wednesday. The US central bank’s recent soft economic data and less impressive statements have contributed to a dovish outlook among traders. The CME’s FedWatch Tool indicates a more than 70% chance of the Fed maintaining its current stance on Wednesday, with nearly 80% odds favoring a 0.25% rate increase in July.

The weakening US Dollar is not the only factor supporting the XNG/USD rally. The rate cut implemented by the People’s Bank of China (PBoC) and expectations of increased energy demand due to the hot summer in Western countries are also contributing to the positive momentum.

However, the cautious mood ahead of the release of key US Consumer Price Index (CPI) figures and the ongoing US-China tensions are exerting some downward pressure on natural gas prices.

Market forecasts are focused on the Core CPI MoM figure, with expectations of no change from the previous reading of 0.4%. Softer CPI figures could delay concerns about a rate hike in July and may prevent the Fed from adopting a hawkish stance. Additionally, there are tensions between the US and China, as the US expands its ban on imports from Xinjiang and China vows to protect its domestic firms from any US sanctions, as reported by Reuters.

Moreover, US Treasury Secretary Janet Yellen’s prepared remarks for her testimony in front of the House Financial Services Committee highlighted the importance of institutions like the International Monetary Fund (IMF) and the World Bank (WB) as counterweights to non-transparent and unsustainable lending practices from other countries, such as China, according to Bloomberg.

As South African market participants monitor global energy markets, the recovery in natural gas prices and the influence of the US Dollar and upcoming US economic data will be of interest. Traders and investors in South Africa should follow these developments closely to inform their energy investment decisions.

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