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Trading the Australian Gross Domestic Product (GDP) Report

Trading the Australian Gross Domestic Product (GDP) Report

2013-06-04 21:00:00
David Song, Strategist

Trading the News: Australia Gross Domestic Product

What’s Expected:

Time of release: 06/05/2013 1:30 GMT, 21:30 EDT

Primary Pair Impact: AUDUSD

Expected: 0.7%

Previous: 0.6%

DailyFX Forecast: 0.5% to 0.7%

Why Is This Event Important:

The Australian economy is expected to grow another 0.7% following the 0.6% expansion during the last three-months of 2012, and the faster rate of growth may prop up the aussie as it dampens speculation for lower borrowing costs. However, as the Reserve Bank of Australia (RBA) keeps the door open to push the benchmark interest rate to a fresh record-low, a dismal growth report may encourage Governor Glenn Stevens to further embark on the easing cycle in the second-half of the year, and the higher-yielding currency may face additional headwinds in the coming months as the region faces an uneven recovery.

Recent Economic Developments

The Upside

Release

Expected

Actual

Private Sector Credit (MoM) (APR)

0.3%

0.3%

Employment Change (QoQ) (APR)

11.0K

50.1K

Trade Balance (MAR)

0M

307M

The Downside

Release

Expected

Actual

Retail Sales s.a. (MoM) (APR)

0.3%

0.2%

Westpac Consumer Confidence s.a. (MoM) (MAY)

--

-7.0%

NAB Business Confidence (APR)

--

-2

The rebound in global trade along with the pickup in employment may produce a strong GDP print, and a positive development may increase the appeal of the Australian dollar as it limits the RBA’s scope to deliver another rate cut in the second-half of 2013. However, Governor Stevens may preserve a dovish tone for monetary policy amid the ongoing weakness in the real economy, and the central bank may push the benchmark interest rate to a fresh record-low later this year in an effort to encourage a stronger recovery.

Potential Price Targets For The Release

Forex_Trading_the_Australian_Gross_Domestic_Product_GDP_Report_body_ScreenShot012.png, Trading the Australian Gross Domestic Product (GDP) Report

Despite the rebound in the relative strength index, the AUDUSD is struggling to push back above the 23.6% Fibonacci retracement from the 2011 high to low around 0.9780-90, and we may see the pair continue to carve a lower top in June should the GDP report fuel speculation for additional monetary support. However, a positive development may fuel a key reversal in the Australian dollar, and we may see the AUDUSD work its way back towards parity should the report dampen expectations for lower borrowing costs.

How To Trade This Event Risk

Forecasts for a faster rate of growth instills a bullish outlook for the higher-yielding currency, and a positive development may set the stage for a long Australian dollar trade as it dampens bets for another rate cut. Therefore, if the growth rate expands 0.7% or greater during the first three-months of the year, we will need to see a green, five-minute candle following the print to establish a buy entry on two-lots of AUDUSD. Once these conditions are met, we place the initial stop at the nearby swing low or a reasonable distance from the entry, and this risk will generate our first target. The second objective will be based on discretion, and we will move the stop on the remaining position to cost once the first trade hits its mark in order to protect our profits.

On the other hand, the slowdown in private consumption along with the drop on confidence may continue to drag on the real economy, and Governor Stevens may show a greater willingness to push the benchmark interest rate to a fresh record-low in an effort to encourage a stronger recovery. As a result, if the GDP report falls short of market expectations, we will carry out the same setup for a short aussie-dollar as the long position mentioned above, just in reverse.

Impact that Australia GDP 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)

4Q 2012

03/06/2013 0:30 GMT

0.6%

0.6%

+13

-27

4Q 2012 Australia GDP

Forex_Trading_the_Australian_Gross_Domestic_Product_GDP_Report_body_ScreenShot011.png, Trading the Australian Gross Domestic Product (GDP) Report

Australia grew another 0.6% during the last three-months of 2012 after expansion a revised 0.7% in the third quarter, and the slowing recovery may prompt the Reserve Bank of Australia to push the benchmark interest rate to a fresh record-low in an effort to encourage a stronger recovery. Nevertheless, the in-line print propped up the Australian dollar, with the AUDUSD advancing to the 1.0300 figure, but the higher-yielding currency struggled to hold its ground throughout the day as the pair closed at 1.0234.

--- 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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