Natural gas and the US Dollar Index
Between July 20 and July 27, 2016, natural gas (UNG) (FCG) (BOIL) (GASL) (GASX) (UGAZ) (DGAZ) futures rose by ~1.5% and the US Dollar Index (UUP) fell by ~0.15%. The US Dollar Index has been holding above the 97 mark lately as markets expect a rate hike by the Fed in September.
In the last five trading sessions, natural gas futures and the US Dollar Index moved in opposite directions in only one instance. The correlation between the two over the last five trading sessions was 76.9%. This would mean that movements in natural gas are influenced more by fundamental news compared to the US Dollar Index. It’s similar to the relationship between the US dollar and crude oil in last five trading sessions ending on July 26. A strong US economy could mean stronger fuel demand and a stronger dollar.
Natural gas price movements
On May 2, 2016, the US Dollar Index closed at 92.62—its lowest level year-to-date. Between May 2 and July 27, the US Dollar Index rose by ~4.8%, while natural gas futures rallied by 30.2%.
Between May 2 and July 27, the US Dollar Index and natural gas prices moved in opposite directions based on the closing price in 29 out of 60 trading sessions. This isn’t enough evidence to point to an inverse relationship between the two like the relationship between the US dollar (UUP) and crude oil over the long term. A strong dollar makes crude oil expensive for crude oil importing countries.
This analysis could be important for natural gas–weighted stocks such as Range Resources (RRC), Antero Resources (AR), Rex Energy (REXX), Gulfport Energy (GPOR), EXCO Resources (XCO), Contango Oil & Gas (MCF), and Memorial Resource Development (MRD).
Natural gas prices also impact ETFs such as the Direxion Daily S&P Oil & Gas Exp. & Prod. Bull and Bear 3x Shares (DRIP), the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), the Vanguard Energy ETF (VDE), and the Fidelity MSCI Energy Index ETF (FENY).
Range Resources (RRC), Antero Resources (AR), Rex Energy (REXX), Gulfport Energy (GPOR), EXCO Resources (XCO), Contango Oil & Gas (MCF), and Memorial Resource Development (MRD) operate with a production mix of 71.20%, 80.6%, 62.40%, 78.0%, 88.7%, 66.9%, and 78.1%, respectively.