Another five months on since my last petrol price update and oil prices have continued to rise, but so has the value of the Australian dollar. So while crude oil prices in US dollars are up around 75% since their lows in February, they are only up 29% in Australian dollar terms.
The Australian dollar has been rising steadily for the last six months, pushed along by the Reserve Bank of Australia which has started raising their target cash rate. Higher interest rates in Australia make it more attractive for offshore investors to buy Australian securities and they have to buy Australian dollars to do so. Australian investors holding foreign assets may do the same.
Australia Dollar/US Dollar Exchange Rate
So what does all of this mean for prices at the petrol pump in Sydney? The Australian Automobile Association reported average prices in Sydney of just over $1.20/litre. Based on my simple regression model, the latest crude oil prices and exchange rates indicate that October prices should be about 10 cents/litre lower.
More details on this model can be found in earlier petrol posts.
Data source: Bloomberg and the Australian Automobile Association.