The cost of living crisis strikes most countries across the globe as energy levels rise, food prices hit new highs and the cost to own a home becomes increasingly expensive.
Back in April the average home loan rate was 2.65%, the cash rate was at 0.1% and monthly repayments on a $500,000 home loan were $2,015. And yet, just four months later, the cash rate is up to 1.85% and those monthly repayments are now $2,504. - The Guardian
This is a huge spike of nearly 25% per month you need to pay more on your re-payments or you could be hit with repercussions...
That being said Australia is set to grow at the slowest rate yet for the coming years and our data is suggesting a potential downturn in the AUD.
The technology summary page showcases the latest fundamental trends in economic data for a selected currency pair. In this case we can clearly see AUD/USD looking bearish.
Three out of four economic indicators are showing bearish signs suggesting, are sellers about to take control and will this massive downtrend continue?
The only contradiction we see in the analysis is the GDP differentials, suggesting in the long term the growth rates in Australia are actually up against the United States.
Currency Strength Meter
The best currency strength meter we use is our own Logikfx Macro Currency Strength Meter.
This supports our analysis by filtering market noise by identifying fundamentally whether countries are looking weaker or stronger.
What we've identified across AUD/USD is that Australia's economic indicators have been fairly strong over the past few months, however, as we move into August we see Australia taking a big hit in terms of fundamental data. Weakening significantly.
On the flip side the opposite is seen in the United States.
This overall, allows us to focus on bearish opportunities on AUD/USD and ignoring any bullish signs to try and take advantage of the macro trend.
The GDP differentials are one of our contradictory indicators which suggests although Australia growth rates are falling, US is falling at a slightly quicker pace.
This suggests that in the long run AUD/USD may rise... however, these forecasts tend to change from the IMF as GDP is a lagging indicator built up from various economic data to build a full picture.
Trade Analysis (Imports/Exports)
Throughout the trade analysis, overall we're seeing a bearish consensus...
In our first commodity Gold we see a very strong correlation against AUD/USD, as prices of gold rise AUDUSD tends to follow and vice versa.
However, gold prices over the past month have actually started to rise which may be why we're seeing a spike in AUDUSD...
This is going against our bearish outlook on AUDUSD but lets see what the rest of the import/export analysis is suggesting.
Crude oil WTI prices are another commodity we've stuck in the analysis...why?
WTI is a huge export and import for the United States, fluctuations in the price of oil have significant impact on exchange rates and consumer/ business spending which further affect fiscal and monetary policy.
Over the past couple months we've actually seen oil prices fall back down to levels seen in February... well... our fuel prices haven't reflected that have they? All these oil companies have kept prices high where the raw commodity prices have been falling, significantly increasing corporate profits while consumers face high inflation...
Anyway, in this case we can see AUDUSD is looking bearish according to WTI prices which agrees with our directional trend.
Finally, we move onto the Iron Ore prices against AUDUSD.
This is another strong positive correlation we have and again over the past few months a clear downwards trend is seen.
This suggests and strengthens our bearish consensus and gives us more confidence we're expecting a downwards move in AUDUSD.
Interest Rate Differentials
The interest rate differentials are also suggesting a downwards trend as the differentials start to edge to the negative regions we see money flowing out of Australia and into the USD.
This is a strong economic indicator which has direct influence on exchange rates.
Hedge Fund Positions
The hedge fund positions for the first times in over a month have started to show bearish sentiment for AUDUSD.
This allows us as traders to understand whether we're trading with or against the markets.
In this case we can see hedge funds increase their open interest positions on USD meaning they're buying the dollar but at the same time increasing their sell positions on AUD.
Overall, the price of AUDUSD has been downwards trending for the past quarter, there has been a recent price correction however... will we see that rebound or will sellers take control here?
In this region I will be looking for bearish technical signs and any strong confirmation signals on a bearish move.