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AUDNZD Analysis (Dec, 2021) Australia’s Economic Contraction

Australia was one of the countries around the world to take strict action on keeping the virus out of the country. This did however have knock on effects of less people getting vaccinated which meant a slower rollout across the Aussie population.

This has created further national lockdowns throughout the country which has created construction and supply chain issues across the country.

Economists are bracing themselves for a severe contraction in the nation’s economy when Australia’s GDP figures for the September quarter are revealed later today. - Sky News

One of the major reasons mentioned that is likely to have caused the economic downturn is the slump in household spending.

Logikfx Technology Summary

Economists are expecting some economic contractions across Australia with the new GDP release. However, currently most the economic indicators across Logikfx are also suggesting downwards pressure on the Aussie Dollar.

One thing we need to watch out for though is the macro currency strength meter is currently in a region where AUD and NZD both had stronger economic data releases... this may change moving into December and the new year so definitely one to keep an eye on.

Overall, what we can do is keep AUDNZD on the watchlist for any bearish pressure... we're still uncertain due to the macro currency strength meter's unclear filtration in a neutral area.

Majority of the other economic variables are suggesting a bearish stance.

Macro Currency Strength Meter

As mentioned above... the macro currency strength meter is currently showing both Australia (AUD) and New Zealand (NZD) having mixed bullish data.

What this means as traders is we can't pin point exactly fundamentally the bias we should take moving forwards so the best thing to do would be to keep an eye on the pair as all other signs seem to be bearish.

GDP Differentials

The GDP Differentials is one of the major economic indicator policy makers, economists and government officials keep an eye on to state how the economy has performed. What we can take from the current differentials is that Australia is looking contractionary in comparison to New Zealand's growth.

This has created a negative differential which between 2013 - 2019 it was in this region the AUD/NZD price hit a huge downwards trend.

If this relationship is to continue we may be set for the AUDNZD exchange rate to further depreciate.

Trade Analysis (Imports/Exports)

Iron ore as per our previous analysis is a major commodity exported by Australia... prices are plummeting.

This price dip is a sign of how the Australian economy is suffering.

China has started to reduce it's carbon footprint and reducing demand on Iron ores... with supply and demand theory as demand falls prices fall but as demand rises prices rise too. This shows that there may be an oversupply of Iron ore across Australia and companies are looking to sell it at a cheaper price to get it off their shelves.

This is overall bearish agreeing with other bearish indicators of a potential downwards trend yet to kick in.

Coal and other natural materials are commodities in which Australia export...

What we can see from the AAL comparison is that prices have been dipping over the past few months... this can also be seen as bearish for AUDNZD.

If lockdowns continue then supply chain pressure may persist with company profits getting hurt and demand falling globally.

Interest Rate Differentials

The interest rates haven't been very active... currently sitting very low and continuing to fall since the 2008 financial crisis. The differentials are currently negative as New Zealand has higher interest rates in comparison to Australia suggesting traders may potentially prefer in the NZD for either carry trade purposes or earning more interest on their currency holdings.

Stock Market Analysis

The ASX200 shows the performance of the top 200 companies across Australia... what we can gather from the index priced in NZD is that the stock market did rebound now hitting new highs.

It is however again starting to take a small correction suggesting a stock market downturn which leads to a potentially bearish signal...

Hedge Fund Sentiment

Overall, the market sentiment of hedge funds show that the big players in the markets are selling the AUD and buying the NZD... suggesting that hedge funds potentially prefer to be short AUD/NZD.

This means a bearish idea would be trading with the market sentiment and not against it.

Price Trends

Price trends have shown downwards pressure throughout 2021... it has recently bounced from a level of support potentially reaching levels where sellers are to come back in and hit the downwards trend.

Definitely a pair for the watch list to keep an eye out on and watch for further technical signs.

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