Australia's exports are taking a big hit especially Iron ore... this week alone prices were down over 10 percent a tonne. One of the main reasons of this price slump was China's threat to bring the cost down by putting the brakes on purchasing crude steel to reduce their emissions.
AUD/CAD is one of the bearish positions we analysed a few weeks back which has now hit a downturn, this is an interesting sign that the downtrend may be imminent.
Logikfx - Technology Summary
The Logikfx technology summary shows that overall the major economic indicators are experiencing bearish fundamental data. The page gives the technology user a quick summary on a forex pair based on fundamental data. The arrows show what the sentiment for the data releases are.
In this case all the below are showing bearish economic data releases:
Macro Currency Strength Meter
The currency strength meter over the past couple months has shown bearish signs throughout the period for AUD. There was a slight positive correction last week but has since fallen back down. CAD has started to show bullish signs creeping up with bullish fundamental data since last week.
GDP Differential Indicator
The GDP differential indicator shows an expanding divergence between the GDP growth rate in Australia and Canada. The indicator shows that the IMF have forecast that Australia is looking to grow slower than 2021 and slower by 2% compared to Canada.
This is a bearish sign that Australia is not going to be outputting as much as Canada.
Trade Analysis (Imports/Exports)
The commodities analysed in the trade analysis are also showing bearish signals, especially Iron ore one of Australia's major commodities. We also analysed crude oil and coal prices which are both imported and exported heavily between Australia and Canada.
Crude oil prices WTI show prices have actually risen in the past few months since the slump. It has then hit a major level of resistance which saw sellers start pushing prices down. It will be interesting to see if this level holds and WTI prices fall further. Currently, WTI prices suggest a neutral stance on AUDCAD due to limited growth and a slight dip.
We'll need to consider more indicators like below to see how significant these price changes will be.
Iron ore prices are the major disruptor peaking a couple months ago and now in a bear market itself dropping from over 210 to now sub 150. This is a huge bearish sign as Australia has a strong positive correlation with Iron ore prices, with prices of the commodity now falling significantly AUD may see a correction too.
Coal prices have managed to maintain a strong trajectory two months ago however we're now seeing a slight dip in coal prices from it's previous high. Currently prices haven't really moved since last month's correction which is giving us a neutral outlook on coal.
The interesting levels are now approaching which saw Coal prices drop in 2010.
If the largest nations in the world start to commit to a carbon negative economy then fossil fuel prices are likely to continue to fall...
Interest Rate Differentials
The interest rate differentials are also showing bearish signs on a monetary policy level. It shows that investors would rather invest currency in Canada than Australia due to higher interest rates.
Overall, this is bearish for AUDCAD.
Stock Market Analysis (ASX200)
The stock market is actually showing great signs overall for Australia. The markets have recovered since the pandemic and created higher highs...
Now that markets are approaching Christmas time it will be interesting to see if Australia continues to implement lockdowns which hurt the economy or if they start to bump up their
Currently this indicator is looking bullish for AUDCAD, if prices start to dip in the coming months then to will be a great leading indicator that AUDCAD may start turning into a bear market.
Hedge Fund Positioning (COTA)
The hedge fund positions on AUDCAD are very clearly showing bearish signs. The open interest for hedge funds are currently net negative meaning they're selling AUD. Whereas, for CAD they are hovering neutral. This overall agrees with our bearish outlook on AUDCAD confirming we would be trading with the market and not against it.
Prices on AUDCAD have stagnated over the past month not really moving. AUDCAD is currently sitting at a key resistance level and may see a dip continue after a slight correction.
If not there are 2 other major levels market out in red which could see sellers engage and push prices lower.