NZDCAD Analysis (May,2021) NZX50 Stock Market Dip
Throughout the analysis we've found some interesting signs of early bulls coming into the market. However, we're still expecting potential sellers until we see a catalyst to drive buyers into the markets.
Fundamental Summary:
Marco Currency Strength Meter - Bullish
GDP - Bearish
Trade Analysis (Import/Export) - Bearish
Interest Rate Differentials - Neutral
Hedge Fund Positions - Bullish
Price Trends - Neutral
Stock market - Bearish
Macro Currency Strength Meter
Overall the macro currency strength meter has shown bullish signs for NZDCAD.
The base currency NZD in solid blue has maintained a positive macro score but on the flipside CAD has breached the negative region.
Overall creating a macro score which is bullish for NZDCAD.
Gross Domestic Product
Overall, the Gross Domestic Product indicator shows this year that Canada is expected to outgrow New Zealand. This is bullish for 2021.
Future expectation also are in favour of Canada which means the GDP indicator is yet to align with the Macro currency strength meter.
This could therefore be a potential false signal on the domestic macro analysis... which solidifies our hypothesis that NZDCAD may be in for a final bearish move before any buyers come into the market.
Trade Analysis - Imports vs Exports
The NZDCAD vs Steel & Tube Holdings Ltd (STU) maintained a strong positive correlation over the past 7 years.
The Price of STU has been on a steady downtrend...
NZDCAD has also maintained a downwards trajectory during this same period.
However, more recently STU prices have started to rise.
This also saw NZDCAD rise in prices which could be a potentially bullish confirmation signal for the currency strength meter.
A2 Milk is another major company we analyse when considering NZD pairs.
Milk and Dairy products are a huge export for New Zealand and what we've seen recently on A2 Milk is a huge land slide.
The prices of A2 Milk have pretty much crashed... could it have been a bubble before?
Considering the positive relationship between the exchange rate and A2 milk we could further expect NZDCAD to fall until we a reverse in A2 milk prices.
Interest Rate Differentials
The interest rate differentials aren't showing any interesting signs so we're overall neutral on this economic indicator.
We can see both countries trying to maintain a low interest rate with currently no signs of rising them.
If there's a large surge in demand and recovery in the economy it may spike inflation meaning interest rates could be hiked to cool the economy.
If not, we may see those low interest rates for some time...
Hedge Fund Positioning - COT Report
Hedge fund positions seem to be overall buying more NZD than CAD.
The worrying sign is that there's no real clear direction they're purchasing or selling.
Ideally, we would like the solid blue line to be above zero, this would indicate they're buying NZD.
Then the dotted line to be below zero to indicate their overall selling CAD.
Currently, the differential between the 2 is positive meaning we're more inclined to bullish sentiment but for more confidence we'd like that divergence in open interest.
Stock Market Analysis
The NZX 50 (CAD) is showing bearish signs...
The peak can be seen end of last year in December and has since stared to nose dive.
This was then followed by a big dip in NZDCAD.
What I'm watching out for is new highs to be broken on NZX50 to be confident in an upwards move on NZDCAD as this is normally a leading indicator for the exchange rate.
Price Trends
Above in the price charts we can see a potential area of support...
However, with the economic data showing overall bearish signs we'd like to wait for a bullish signal on the majority.
This means we can expect some more bearish movement until we see a more bullish stock market and trade analysis.
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