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AUDUSD Rebound at Risk as Growth Slows- Key Levels to Watch

AUDUSD Rebound at Risk as Growth Slows- Key Levels to Watch

2013-09-03 22:00:00
David Song, Strategist
Share:

- Australia 2Q GDP to Highlight Slowing/Uneven Recovery

- Slower Growth to Drag on AUDUSD- Renew Bets for More Dovish RBA

Trading the News: Australia Gross Domestic Product

The slowing recovery in the Australian economy may prompt a further selloff in the AUDUSD as it raises the scope of seeing the Reserve Bank of Australia (RBA) introduce additional rate cuts over the near to medium-term.

What’s Expected:

Time of release: 09/04/2013 1:30 GMT, 21:30 EDT

Primary Pair Impact: AUDUSD

Expected: 0.5%

Previous: 0.6%

DailyFX Forecast:0.2% to 0.5%

Why Is This Event Important:

RBA Governor Glenn Stevens may come under increased pressure to further embark on the easing cycle amid the ongoing slack in the region, and the central bank head may continue to favor a lower exchange to help with the rebalancing of the $1T economy.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Retail Sales (MoM) (JUL)

0.4%

0.1%

Net Exports of GDP (2Q)

0.10%

-0.04%

Employment Change (JUL)

5.0K

-10.2K

The GDP report may highlight a more protracted recovery amid the slowdown in global trade along with the ongoing weakness in real economy, and the bearish sentiment surrounding the higher-yielding currency may gather pace should the data renew bets for additional monetary support.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Building Approvals (MoM) (JUL)

4.0%

10.8%

Private Sector Credit (MoM) (JUL)

0.4%

0.4%

Home Loans (MoM) (JUN)

2.0%

2.7%

Nevertheless, record-low borrowing costs may limit the risk of seeing a pronounced slowdown in the growth rate as it encourages private-sector lending, and a positive development may prompt a more meaningful correction in the exchange rate as raises the RBA’s scope to retain its current policy.

How To Trade This Event Risk(Video)

Bearish AUD Trade: 2Q growth rate slows to 0.5% or lower

  • Need to see red, five-minute candle following the report for a potential short trade on AUDUSD
  • If market reaction favors a short trade, sell AUDUSD with two separate position
  • Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward
  • Move stop to breakeven on remaining position once initial target is met, set reasonable limit

Bullish AUD Trade: GDP exceeds market forecast

  • Need green, five-minute candle to consider a long AUDUSD trade
  • Carry out the same setup as the bearish AUD trade, just in the opposite direction

Potential Price Targets For The Release

Forex_AUDUSD_Rebound_at_Risk_as_Growth_Slows-_Key_Levels_to_Watch_body_ScreenShot060.png, AUDUSD Rebound at Risk as Growth Slows- Key Levels to Watch
  • Bearish trend remains intact; 50-Day SMA (0.9102) lines up with trendline resistance
  • RSI approaching resistance (53); break higher may bring range-bound prices
  • Soft resistance: 0.9210-20 (61.8% Fib retracement)
  • Soft support: 0.8990 pivot; 0.8700 (78.6% retracement) to 0.8710 (38.2% expansion)

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)

1Q 2013

06/05/2013 1:30 GMT

0.7%

0.6%

+8

-91

1Q 2013 Australia GDP

Forex_AUDUSD_Rebound_at_Risk_as_Growth_Slows-_Key_Levels_to_Watch_body_ScreenShot059.png, AUDUSD Rebound at Risk as Growth Slows- Key Levels to Watch

Australia grew an annualized 2.5% in the second-quarter to mark the slowest pace of growth since 2011, and the uneven recovery may prompt the Reserve Bank of Australia to push the benchmark interest rate to a fresh record-low in order to stem the downside risks for the $1T economy. Although the initial decline in the AUDUSD was short-lived, the Australian dollar struggled to hold its ground throughout the day as the pair closed at 0.9539.

--- 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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