Jul 18, 20213 min read

AUDNZD Analysis (July, 2021) Bears in control

Australia was one of the countries that had a great start battling the pandemic, closing borders early, implementing restrictions and enforcing social distancing. June saw unemployment rates fall to 4.9% which was a 0.2% decrease since the previous month.

However, increasing numbers of infections have again caused the country to start lock down procedures as the country's vaccination programme hasn't had a majority adoption in comparison to countries like the United Kingdom.

House prices in Australia also saw a 16% increase in prices this year, which was way above expectations. This is a worrying sigh of inflation, monetary and fiscal stimulus driving assets higher and prices increasing. Forex traders should be keeping an eye on signs like this as inflationary pressure is bearish on the base currency (AUD).

Let's take a look at the fundamental data to see what's going on in the background.

Logikfx Technology Summary

The Logikfx technology gives traders a high level summary of what the fundamental data is pointing towards. Most recently the key fundamental indicators are suggesting a bearish investor outlook on AUDNZD.

Macro currency strength meter

The macro currency strength meter started showing bearish signs for AUD and bullish signs for NZD on 17/07/2021. Throughout the start of July we saw AUD maintaining a strong fundamental score, the data then started to become bearish as we come towards the end of July. NZD data is also at the same time starting to show bullish signs creating a currency strength crossover.

These are great times for future trending movements... in this case a AUD/NZD downtrend based on the data looks like one to watch out for.

GDP differential indicator

The GDP differential indicator shows us a long term vie of economic expansion of the selected economies. In this case Australia is looking to be outpaced by New Zealand slightly as we head towards 2022.

This bearish outlook on GDP is promising as it aligns with the view of the currency strength meter.

Trade analysis (Imports/Exports)

ATM dairy is a large exporter of dairy products in New Zealand. The exponential growth we saw over the past 5 years took a massive dip the past year. However, we're now seeing a potential bounce as prices look to recover.

This recent bullish price movement in ATM is actually bearish for AUD/NZD as they have a direct negative correlation.

Again, we have a confirmation on exports that a bearish movement is something to watch out for.

Iron ore is a huge export for Australia, you can see the near mirror price movements between the two. What's interesting is that Iron ore at at sky high prices right now, breaching new highs not seen since 2010, that's 11 years of price growth in one year!

This is actually bullish for AUDNZD so it goes against our original analysis from the macro currency strength meter.

Coal prices are another big export for Australia. We've analysed AAL a huge coal and minerals exporter and similar to Iron ore we've seen coal prices increase massively over the past few years.

More interestingly there's been a huge dip in AAL coal prices, this in combination with the positive correlation to AUDNZD is a strong bearish sign.

Overall, the exports and commodities analysed show the bearish investor sentiment on AUDNZD confirming our original idea.

Interest rate differential indicator

The interest rate differential indicator shows overall the hot money flow. Investors prefer to earn interest on their assets and if they're holding assets in a certain currency earning interest on that currency is a bonus.

What we can see in the indicator is that the Australian interest rates are dovish in comparison to New Zealand's interest rates which are more hawkish.

This creates a bearish investor sentiment on AUDNZD at a monetary policy level.

COT analysis - Hedge fund sentiment

The hedge fund sentiment is important to understand, we use the COTA tool at Logikfx to assess what direction the big players in the market are trading. Since 22nd June the hedge fund sentiment has been bearish and currently it agrees with the potential AUD/NZD bearish trend forming.

This is a great sign as the market is saying we're trading with the big money and not against it which increases the likelihood of the trade!

Stock market analysis

Overall, the Australian stock market has had a massive recovery since March 2020. The ASX200 which is a stock market index for Australia's top 200 companies has since broken pre-pandemic levels.

The slight dip recently however shows that we're in a potentially dangerous sell off point which could see stock values drop but also AUDNZD.

Overall, the stock market is showing bullish signs but if this dip is to continue to trend downwards then it can be a catalyst for our bearish move on AUDNZD.