AUDNZD Forex Analysis (Jun, 2021) Unexpected Bear Sentiment
While Australia deals with a sudden mouse infestation, their dairy-producing neighbours record zero new coronavirus cases on June 1st. What does the real economic data beneath the headlines suggest? Can this be a sign of a potential economic recovery?
The economic vulnerabilities and divergences are already there for the AUDNZD pair. As we've seen with the coronavirus, once conditions are met, all it takes is a trigger for a wonderful trade idea.
Fundamental Summary
Bearish
Bearish
Trade Analysis (Imports & Exports)
Neutral
Bearish
Domestic Stock Market Analysis
Neutral
Bearish
Bearish
Macro Currency Strength Meter
Our macro currency strength meter demonstrates a perfect divergence between the Australian economic data and the New Zealand economic data. With the Australian data trending downward consistently for some time, the New Zealand scores make a strong push to the upside.
As we dig deeper we will explore the source of this increase in scores
This suggests strength and a bullish bias in the NZD vs weakness and a bearish bias in the AUD, supporting our thesis for this bearish position in the AUDNZD pair.
GDP Differential Indicator
Our GDP Differential indicator demonstrates a crossing between the scores of the AUD and the NZD. With them both trending downward anyway and the difference between them being quite thin, we will look to current projections to create a clearer bias for this trade.
IMF projections for both economies show that they will both taper down from current levels. However, the projection does support a more dramatic fall-off for the Australian economy than for the New Zealand economy. This will create a spread that will narrow again in the future. Current levels and projections are supportive of our bearish bias against the Australian dollar vs the New Zealand dollar. However, the GDP growth rate spread is quite thin. Therefore, although the signal is in fact bearish, I would not say its a very strong signal. Fortunately, this is not the only factor in our fundamental analysis.
Trade Analysis
There is some correlation between MILK futures and the AUDNZD pair. Milk is the largest export for the New Zealand economy however and such, the commodity prices needed examining. What we see here is that they both make significant swing highs and lows around the same time. They generally trend in the same direction as well. Lately, more volatility can be seen on Milk Futures. This chart can be rated as neutral for our prices
Iron Ores and other minerals are the largest Australian exports. This chart maps Iron Ore futures on the AUDNZD pair. We can see a directional correlation on higher timeframes. These prices generally trend together.
We can see AUDNZD already trending downward with Iron Ore prices just coming down from a high. If Iron Ore begins a new downtrend along with the AUDNZD pair, this will be supportive of our trade. For now, it remains neutral.
Coal is also a significant Australian export. However, the correlation tends to be inconsistent with our Forex pair. At times the correlation may invert or just break down on different time frames.
For now, they are both coming down from a recent swing high. Like with the other charts, if the commodity prices continue going down, that will be supportive of our bearish bias against the Australian dollar and supportive of our trade idea.
In summary, an increase in the prices of the commodities exported by either country would be supportive of its respective currency. However, as they are both commodity currencies, what we need to see is a divergence in commodity prices to have a dramatic effect on these currencies. If the prices of Minerals and Ores rise, the demand for Australian dollars will also rise, going against our trade idea and the inverse would support our bearish position. The same also applies to the NZD. If Dairy prices rise, that supports our trade idea. However dairy by itself does not seem to have a sufficient impact on the currency pair.
What we need: Rising in the price of dairy while commodity prices for Australian exports go down.
Interest Rate Differentials
Our Interest Rate Differentials indicator suggests that holding either of these currencies does not make for a very good carry trade. However, we are in a global, low-interest-rate environment. The Reserve Bank of Australia remains committed to its 0.1% interest rate. They expect to maintain whatever measures are necessary until 2024 when they predict achieving their 2-3% inflation target. Currently, inflation sits at 1.1%.
The Reserve Bank of New Zealand has also committed to supporting the economy in very much the same way with similar inflation targets. Their interest rate, however, remains 15 basis points higher than that of the Australian Central Bank, at 0.25%.
While they are both low, the data suggests that for the near, medium, and possibly long term, the interest rate differentials between these economies will be supportive of our bearish position on the AUDNZD.
Domestic Stock Market Analysis
The Australian Stock Market is currently pushing all-time highs having recently come off of support. It is at its previous all-time high. If it breaks this level and retests it as support, that may be incredibly bullish for the Australian economy, going against our trade idea.
However, we have recently seen an inverse correlation between the AUDNZD pair and the Australian stock market prices. Could a further breakout to the upside, therefore be supportive of our bearish position? It seems so. However because this correlation does not seem to be reliable over longer durations, we don't know when it may break down.
We will count this as generally supportive but overall neutral.
The New Zealand Stock Market has, however, been trending downward and is breaking through levels of support. This suggests an overall decline in wealth and does not support our position.
The relationship between the New Zealand Stock Market prices and the AUDNZD exchange rate is inconsistent. It seems as though they have an inverse correlation over time, but they are both trending downward.
This suggests that that correlation may not be the most reliable indicator for our trade idea.
The AUDNZD pair is not reliably correlated with the domestic stocks of these countries. This part of our analysis returns a neutral position with interesting things to look out for.
Hedge Fund Positioning
We are seeing a consistent increase in long positioning in favor of the New Zealand dollar. This is supportive of our long bias on the NZD.
At the same time, we have seen a recent dip in positioning on the AUD. A cross in the net positioning between the two suggests that our trade idea is supported by hedge funds. We have the volume behind the trade for price to move in our direction
Price Trends
On the monthly chart, the price has approached a significant level. Historically, price has reacted to this level on the monthly chart. This can be seen with all the wicks in that area at that price level.
If the price breaks through, that would be a great signal for our trade. For now, we need to make it past this significant monthly support level before entering.
On the weekly chart, price is trending downward. Other than readjusting the support lines for more accuracy due to having more data points, nothing new is added to the technical analysis on the weekly chart. Everything is supporting the downward momentum. We just need a break through support.
However, we have broken through recent levels of support already on the daily chart.
Perhaps a good technical entry would be to wait for price to hit the monthly support zone then bounce back up to retest the recent daily support turned resistance.
With the full backing of the fundamental bearish bias to the downside, It would not be unreasonable to expect a bounce from the monthly support level to retest daily resistance, from which positions can be entered to the downside as the trend ensues.
Don't you just love how easy this is?
Our LITA technology combines years of trading experience and education into automation that does professional fundamental analysis for you. Feel free to check out our prices on various packages
Or if you're interested in learning fundamental analysis so you can do this on your own, feel free to check out our currency trading masterclass or a beginner class.
Disclaimer
This article is not investment or trading advice. Please seek guidance from a professional who considers your personal circumstances.
Comentarios