According to the first estimate by the US Department of Commerce on January 27, 2017, advance estimates put US (SPY) (VOO) GDP growth at 1.9% for 4Q16. The expectation was for a 2.2% annual growth rate.
GDP growth rate is one of the most important economic data points impacting interest rate decisions. The market’s expectation of a rate hike could strengthen the US dollar (UUP), which could weaken crude oil prices. However, we haven’t seen a similar impact on natural gas prices (UNG) (BOIL). But since the preliminary GDP figure rose less than anticipated, it could delay the Fed’s timing for the next rate hike.
On the other hand, a soft GDP number could mean lower fuel consumption. That would be bearish for crude oil prices (USO) (BNO) and natural gas prices. Crude oil is used to make transportation fuels such as gasoline and diesel, while natural gas is used for power generation.
Impact of US Dollar Index on crude oil and natural gas
In the past five trading sessions, the correlation between crude oil prices and the US dollar was 68.6%, a positive correlation. That doesn’t indicate the dollar’s inverse impact on crude oil prices. A weaker dollar makes crude oil cheaper for oil-importing countries, which boosts crude oil prices. The opposite is also true.
Last week, natural gas had a correlation of -30.0% with the dollar index.
Impact on energy ETFs
Energy ETFs are also impacted by economic data and the relationship between crude oil prices (UWTI) (USO) (OIIL) (USL) (SCO) (DWTI) (UCO) and natural gas (GASL) (GASX) with the US Dollar Index (UUP). These ETFs include the Direxion Daily Energy Bear 3X ETF (ERY), the First Trust Energy AlphaDEX ETF (FXN), and the Energy Select Sector SPDR ETF (XLE).
In the next part of this series, we’ll look at the relationship among crude oil, natural gas, and the S&P 500 Index.