AUDCHF Forex Analysis (April, 2021) Investors Bullish or Bearish?!
Nowadays, economic recovery and expectations of growth are very dependant on how COVID variants are being contained but also if a country has been adopting a strong vaccine programme.
Countries like the United States and the United Kingdom have successfully rolled out vaccines to at least over 30-40% of people for one dose.
On the flip side countries like Australia and New Zealand have gone for a different approach. Their vaccine rollout has been poor with less than 5% of people with on dose of the vaccine it will struggle to open borders.
However, they've done a great job of containing the virus outside with strict measures allowing the country to domestically thrive.
It will be interesting to see if the vaccination programme in Australia picks up or it continues to be low, this could have a big impact on the risk sentiment as investors may seek to investor more in countries who are "safer" with a more vaccinated population.
Let's take a look at our overall research to see if we can pick out anything from the data.
AUDCHF Fundamental Summary
Macro Currency Strength Meter
Bearish
GDP Differential Indicator
Bearish
Trade Analysis (Imports/Exports)
Bullish
Interest Rate Differentials
Bullish
Domestic Stock Market Analysis
Bullish
Hedge Fund Positioning
Bearish
Price Trends
Tentative
Overall at a high level we're at a 50/50 point where there's potential of both a bearish and bullish outlook. Very much will depend on if there is still strong growth in commodities, if this starts to fall we will see a dip in AUD in the future.
Macro Currency Strength Meter
The currency strength meter is showing interesting early signs of bearish data coming in from Australia.
We can see AUD starting off in march quite strong hitting a peak of +40 overall, the trend however seems to have taken a slide and since then it's been falling now at a neutral zone of 0.
If we are to see the AUD currency strength indicator fall below 0 it will be a great confirmation that this trend is to stay and potentially an early sign of price reversing.
This is also considering that CHF follows it's bullish data trend at the same time.
Overall, this would generate a bearish outlook on AUDCHF with data points crossing creating a currency strength cross over.
GDP Growth Differential Indicator
The next part of the research and analysis we're taking a look at GDP growth rate forecasts and the GDP growth rate differentials indicator to gauge AUD/CHF impact. Overall, 2021 is looking quite bullish for AUDCHF but that's already been captured in the price charts.
What we're expecting in 2022 is that IMF have forecast a big dip in growth rates which actually are now sitting below Switzerland growth rates.
This overall can be seen as bearish as investors start to trade on the expectation that Australia won't be growing as fast and potentially dip back down into negative growth rates if vaccines aren't made available and borders aren't opened up.
Trade Analysis (Import/Exports)
Overall, we're analysing coal against AUDCHF and we can see straight away the strong positive correlation this commodity has on the AUD.
Coal prices are soaring as economies are now getting back on their feet, producing more and expecting business to pick back up. This overall creates a huge demand surge from everyone trying to recover which can be seen in soaring coal and commodity prices.
Overall, this is bullish and actually doesn't go with our bearish outlook we'd be expecting. This is one to keep an eye on as if coal prices and commodity prices in general start to dip throughout 2021 that could be the time to start focusing on the idea.
Similar story with Iron ore, prices for the iron ore commodity have been rising quickly.
This is bullish overall, however, iron ore prices area now reaching their 2010 peaks which could see iron ore prices congest and actually fall in the future as no one is willing to purchase at this price.
These high commodity prices could be seen as inflationary everywhere as prices of goods start to increase due to the raw commodity costing so much.
Gold was the final commodity in the analysis and overall we can see that gold has a had a huge bull run the past 5 years.
However, now that gold has peaked it's 2010 levels we are now seeing some resistance and stagnation in price.
The slight dip could be see as investors now look towards a risk on sentiment. This means investors now think they don't need to invest as gold as riskier assets could bring more returns.
Interest Rate Differentials
Finally one of our pieces of technology in the analysis is the Interest rate differentials indicator.
This is a powerful long term tool which gauges the overall money flows across the world.
The theory is that if a country has higher interest rates excluding all other factors then it's currency is more attractive to hold and therefore attracts investors creating a rise in price (exchange rate).
In this case even though Australia has super low interest rates at 0.1%, Switzerland actually have negative rates creating an overall positive interest rate differential which is bullish.
Again, this goes against our idea of bearish outlook on AUDCHF.
Stock Market Analysis - S&P/ASX200
The stock market is one of our final indicators in the analysis.
Australia's major stock market index is the ASX200, compromising of the top 200 publicly floating companies in Australia.
Australia was one of the countries around the world to get control of their covid cases quickly.
There's no surprise then why their stock market is now way over pre-pandemic levels!
This is overall bullish for the Australia and the AUD.
Hedge Fund Positioning - COT Report
We're now onto the optimisation phase of the analysis and we want to make sure we're not trading against the market.
To do this we're using our COT indicator to gauge the overall differential between open interest.
In the chart above we can see Australia in solid blue having a positive open interest above 0 the same as CHF.
However, CHF open interest is starting to take a sharp dip.
Overall, the Net hedge fund open interest is still in the negative region creating an overall bearish outlook on sentiment.
However, to be more confident you'd expect AUD to have a negative open interest so the solid blue line below zero. This would mean hedge funds have more short positions than longs overall.
AUD/CHF Price Chart
Finally, we're onto the AUD/CHF price charts and we can see the AUDCHF has been in a sharp uptrend since around May.
This has no signs of stopping until recently with a very slight dip after approaching an area of resistance seen in 2019.
If we see more signs in this area of bears coming in we could start to focus on AUDCHF and keep monitoring the fundamental indicators to see if this is a strong bearish move or not.
Overall, I'll be keeping an eye on price action here but also the commodity prices.
Next week will be a good update on this so keep an eye on the tech!
