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Australian Dollar to Search for Lower Low on Dismal 4Q GDP

By , Currency Analyst
04 March 2014 22:00 GMT

- Australia 4Q GDP to Expand 0.7%; Matching Fastest Rate of Growth for 2013

- 1Q 2013 Saw the Slowest Pace of Growth as GDP Increased 0.5%

Trading the News: Australia Gross Domestic Product (GDP)

The Australian dollar may continue to retrace the decline from the end of February should the 4Q Gross Domestic Product (GDP) report encourage an improved outlook for growth and inflation.

What’s Expected:

Time of release: 03/05/2014 0:30 GMT, 19:30 EST

Primary Pair Impact: AUDUSD

Expected: 0.7%

Previous: 0.6%

DailyFX Forecast: 0.5% to 0.7%

Why Is This Event Important:

However, as mentioned on DailyFX on Demand, a weaker-than-expected GDP print may trigger a sharp selloff in the AUDUSD as it puts increased pressure on the Reserve Bank of Australia (RBA) to revert back its easing cycle, and we may see Governor Glenn Stevens take a more aggressive approach in talking down the higher-yielding currency in an effort to further assist with the rebalancing of the $1T economy.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

HIA New Home Sales (MoM) (JAN)

--

0.5%

Building Approvals (MoM) (JAN)

0.5%

6.8%

Trade Balance (DEC)

-200M

468M

The pickup in global trade paired with the ongoing expansion in the housing market may have propped up the growth rate during the last three-months of 2013, and a positive result may spur a bullish reaction in the AUDUSD as it limits the risk of seeing the RBA implement another rate cut later this year.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Company Operating Profits (QoQ) (4Q)

2.0%

1.7%

Private Capital Expenditure (4Q)

-1.3%

-5.2%

Unemployment Rate (JAN)

5.9%

6.0%

However, higher unemployment along with the drop in business investments may lead to a dismal GDP report, and a further slowdown in the growth rate may heighten the bearish sentiment surrounding the Australian dollar as it raises the central bank’s scope to implement additional monetary support over the coming months.

How To Trade This Event Risk(Video)

Bullish AUD Trade: 4Q GDP Climbs 0.7% or Greater

  • Need green, five-minute candle following the report to consider a long Australian dollar trade
  • If market reaction favors a long aussie trade, buy AUDUSD with two separate position
  • Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is hit, set reasonable limit

Bearish AUD Trade: Australia Faces Slowing Recovery

  • Need red, five-minute candle to favor a short AUDUSD trade
  • Implement same setup as the bullish Australian dollar trade, just in opposite direction

Potential Price Targets For The Release

AUDUSD Daily

Forex_Australian_Dollar_to_Search_for_Lower_Low_on_Dismal_4Q_GDP_body_Picture_2.png, Australian Dollar to Search for Lower Low on Dismal 4Q GDP

Chart - Created Using FXCM Marketscope 2.0

  • Remains in Topping Process- Lower High in Place?
  • Break of RSI Trendline Support to Highlight End of Near-Term Correction
  • Interim Resistance: 0.9050 (23.6% expansion) to 0.9070 (38.2% retracement)
  • Interim Support: 0.8670 (100.0% expansion) to 0.8700 (78.6% expansion)

Impact that the Australian GDP report has had on AUD during the last quarter

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

3Q 2013

12/04/2013 00:30 GMT

0.7%

0.6%

-78

-105

3Q 2013 Australia Gross Domestic Product

Forex_Australian_Dollar_to_Search_for_Lower_Low_on_Dismal_4Q_GDP_body_ScreenShot164.png, Australian Dollar to Search for Lower Low on Dismal 4Q GDP

The Australian economy grew 0.6% in the third-quarter following a revised 0.7% rise during the three-months through June, and the persistent slack in the $1T economy may push the RBA to carry out its easing cycle in 2014 in order to encourage a stronger recovery. The Australian dollar struggled to hold its ground following the dismal GDP report, with the AUUDSD slipping below the 0.9100 handle, and the higher-yielding currency continued to weaken throughout the day as the pair closed at 0.9026.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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04 March 2014 22:00 GMT