While countries struggle with Central Bank indecisions on interest rates, the harvest season in Australia is predictable. Australia boasts a robust commodity base, frequently called a commodity currency. Commodities account for a large share of Australia's exports, so movements in commodity prices result in movements in export prices. Exports lead to currency conversions to purchase these commodities, leading to a bullish seasonal pattern for the Aussie Dollar as the harvest season begins.
Australia's Harvest Season
The Aussie Dollar's seasonal low, which historically occurs in November-December, is relatively consistent due to the upcoming harvest season of the Summer crops and the surge in exports to countries such as China and other South Pacific Rim countries. This crop year saw the seasonal low come in late October. Moore Research Center Inc. (MRCI) has found that the upcoming move can extend both price and time when markets make early seasonal lows.
Before the harvest season, countries placing tenders for Australian products must purchase Aussie Dollars before delivery, therefore tying the Aussie Dollar to a crop cycle and a consistent demand period for Aussie Dollars.
As well as being the nation's largest grain-producing region, Western Australia is a significant producer of Australia's meat and livestock, dairy, wool, horticulture, and honey products. The graph below illustrates the crop season in Western Australia.
Source: United States Department of Agriculture (USDA)
China's Economy, Impact on Australian Exports
China is a leading importer of Australian products. China's economy has been struggling for a long time but has recently improved. The recent China Composite PMI report for March posted 52.7 points, up from 52.5 points for the prior two months. March's numbers were the highest going back to May 2023, with results of 55.6 points. During this period, the October number came in at 50 points, the lowest in the past 12 months, and has since increased to the current 52.7 points.
If China's economy continues expanding, the need for more Australian exports will add to the strength of this bullish seasonal pattern for the Aussie Dollar.
Technical
After bottoming in early November 2023, a seasonal low, the AUS/USD rallied from approximately .6300 to about .6900 at the beginning of January 2024. Then, a price correction was made to the .6450 level, which has been in a sideways pattern since February 2024. The support level formed at the February lows will be a significant support area in the upcoming seasonal buy window. If the support level fails, the seasonal rally could be terminated.
Over the current price, there is some minor resistance above the .6650 price. Once cleared, the next significant resistance will be the .6900 area.
Source: Barchart
Seasonal Pattern
MRCI seasonal research has found that the Aussie Dollar has usually made a climactic runup into mid-April as the fourth Australian fiscal quarter begins. The timing of this event, in conjunction with the harvest season pattern, has resulted in a bullish seasonal pattern that has been effective for 14 or the past 15 years. The Aussie Dollar closed higher on approximately April 14 than on April 06 93% of the time.
The low seasonal pattern (blue line) typically arrives in November-December. Then, it continues to its seasonal peak in mid-April. The seasonal pattern from January until April is generally sideways, and the recent price action has been consistent. The question is, will the seasonal window (yellow box) be the catalyst to propel prices to their traditional seasonal high period?
Source: MRCI
Source: MRCI
Additionally, 6 of the years never had a daily closing drawdown. That's 40% of the trades were profitable from the first day of the seasonal window to the last.
It's important to note that while seasonal patterns can provide valuable insights, they should not be the sole basis for trading decisions. Traders must consider other technical and fundamental indicators, risk management strategies, and market conditions to make well-informed and balanced trading choices.
In Closing
In conclusion, as countries grapple with uncertainties surrounding Central Bank decisions on interest rates, Australia's predictable harvest season emerges as a beacon of stability for the Aussie Dollar. With a robust commodity base driving exports, particularly to significant importer China, the bullish seasonal pattern of the Aussie Dollar gains significance. Historical data, coupled with MRCI's seasonal research, underscores the consistency of this pattern, particularly during the fourth Australian fiscal quarter. While seasonal trends offer valuable insights, traders must consider other technical and fundamental indicators, risk management strategies, and market conditions to make well-informed and balanced trading choices. As we approach the seasonal window, all eyes are on whether this traditional pattern will again prevail, guiding traders through the dynamics of the Aussie Dollar.
On the date of publication, Don Dawson did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
