AUDCAD Analysis (Oct, 2021) Bears in Control?!
Last months AUDCAD analysis we had a bearish outlook considering the bearish data and plummets in commodity prices that are key to Australia. The IMF has forecast that Australia is one of the worst hit countries hit by the delta variant of COVID-19.
Originally, Australia had a great prevention measures of locking down borders however the overall regulations put through reduced the acceptance of a great vaccine programme which countries like UK and US have managed to maintain to reduce deaths.
AUDCAD has been a pair that's been under our watchlist for some time since September. You can see that the bearish outlook we had last month played out significantly and this months data has confirmed the trend suggesting a following downtrend to continue.
This month we can see the following indicators showing bears are coming:
Overall, the main indicators from the technology bundle here at logikfx have shown a bearish outlook over the past month which is why we're doing an updated analysis to see if the relative analysis techniques also agree with bears being in control.
Macro currency strength meter
The Macro Currency Strength Meter at start of last month was negative which is why we had a bearish outlook on AUDCAD. This month we're starting off again and it shows how AUD data started to strengthen towards the end of last month but mid October we were hit again with bearish fundamental data.
This caused the solid blue line to drop from +10 to -15 month... at the same time CAD has been hovering within a negative data range however this month it started to strengthen significantly. Bullish data has been in an uptrend since the start of this month showing fundamentally CAD is looking strong.
Overall, what we can take from this is we should be looking at the bearish signs in AUDCAD. This is what makes the currency strength meter so powerful by analysing the fundamental data we can filter the market from a top level and dig deeper to investigate further.
GDP Differential Indicator
The GDP Differentials indicator shows us the differential in GDP growth rates between Australia and Canada. Essentially, this gives us a long term lagging view of what's happened or happening in the economy.
What we can take from the indicator is that throughout 2021 and to 2022 Australia is forecast to grow less than Canada. This is shown in the negative diff line in green which shows there's actually a bearish long-term outlook on AUDCAD based on the growth rates and forecasts from the IMF.
Trade Analysis (Imports/ Exports)
AAL Coal is a huge mining company which focuses on ores and minerals exporting them to countries around the world. What we've identified is over the past 10 years of data the AUDCAD exchange rate and AAL is holding an 11% correlation.
This means generally it maintains a positive relationship as AAL prices rise so does AUDCAD.
AAL prices however in the past month have fallen 6%! This is a fairly big drop and funnily enough during the same period we saw AUDCAD start a downwards movement.
Iron ore is another key commodity exported by Australia, however, what we can see is that there's been a huge price drop over the last couple of months. Iron ore and AUDCAD both have a strong positive correlation meaning this continued price drop should see AUDCAD following suit.
This continued price drop signals a bearish outlook on AUDCAD to continue.
WTI is another key commodity that Canada exports... not Australia. This is one of the commodities with the strongest correlation out of the trade analysis. However, the bullish WTI movement suggests a strengthening CAD in comparison to AUD as crude oil is one of Canada's largest exports.
Interest Rate Differential Indicator
The interest rate differentials are at a very limited area right now. Australia and Canada both have significantly low interest rates which mean there's not much of an outlook based on interest rates alone.
What we can take is that Australia have slightly lower interest rates in comparison to Canada which also suggests a bearish movement on AUDCAD.
Stock Market Analysis
The ASX200 shows investors how the Australian stock market is performing. What we've done is price the ASX200 in CAD to see in relation how the stock market is performing. The ASX200 has recovered since March 2020 however... we're now seeing a slight correction in the market which is slightly bearish for AUDCAD.
Overall in the analysis we can see that majority of these indicators are bearish fundamentally.
Hedge Fund Positions
The hedge fund positions haven't had a convincing sentiment right now. Hedge funds are selling both the AUD and CAD at similar levels which means we don't have a strong conviction of market sentiment.
Ideally, we'd like the AUD line to be negative but the CAD line to be positive which would mean we'd be trading with the market against it.
Price Trends
The price movements on AUDCAD have been bearish since September from our last analysis. What we'll be interest in at this point is a breakout on the bottom side.
Most retail traders would look to buy here at a point of support... but fundamentally we're bearish. Therefore, what we're interested in is any bearish signs and a breakout downwards of 0.91.
Take a look at our course below if you're looking to analyse the forex market with the same methods and analysis steps:
