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Bullish AUD Setup in Focus as China 3Q GDP Picks Up

Bullish AUD Setup in Focus as China 3Q GDP Picks Up

David Song, Strategist

- China 3Q Gross Domestic Product (GDP) to Show Faster Growth

- 7.8% GDP Would Mark the Highest Print for 2013

Trading the News: China Gross Domestic Product

The near-term rally in the Australian dollar may gather pace over the next 24-hours of trading as China – Australia’s largest trading partner – is expected to expand at a faster pace in the third-quarter.

What’s Expected:

Time of release: 10/18/2013 2:00 GMT, 22:00 EDT

Primary Pair Impact: AUDUSD

Expected: 7.8%

Previous: 7.5%

DailyFX Forecast: 7.5% to 7.8%

Why Is This Event Important:

A pickup in the Chinese economy may encourage the Reserve Bank of Australia (RBA) to retain its wait-and-see approach throughout the remainder of the year, and the near-term correction in the AUDUSD may turn into a more meaningful reversal as the central bank appears to be moving away from its easing cycle.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Foreign Direct Investment (YoY) (SEP)

5.7%

4.9%

Trade Balance (SEP)

$26.25B

$15.21B

Purchasing Manager Index- Manufacturing (SEP)

51.6

51.1

The 3Q GDP print may fall short of market expectations as the new government moves away from the export-drive market to a more consumer-based economy, and a dismal development may renew bets for more RBA rate cuts amid the rebalancing of the $1T economy.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

New Yuan Loans (SEP)

675.0B

787.0B

Retail Sales (YoY) (AUG)

13.3%

13.4%

Industrial Production (YoY) (AUG)

9.9%

10.4%

However, the ongoing expansion in private sector credit along with the pickup in business outputs may generate a strong GDP print, and a positive release may heighten the more recent bullish sentiment surrounding the AUDUSD as market participants scale back bets for lower borrowing costs.

How To Trade This Event Risk(Video)

Bearish AUD Trade: China 3Q GDP Disappoints

  • Need red, five-minute candle following the report to consider a bearish Australian dollar trade
  • If market reaction favors a sell trade, short 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 hit, set reasonable limit

Bullish AUD Trade: Growth Rate Climbs 7.8% or Greater

  • Need green, five-minute candle to look at a long AUDUSD trade
  • Implement same setup as the bearish Australian dollar trade, just in opposite direction

Potential Price Targets For The Release

AUDUSD Daily

Forex_Bullish_AUD_Setup_in_Focus_as_China_3Q_GDP_Picks_Up_body_Picture_2.png, Bullish AUD Setup in Focus as China 3Q GDP Picks Up

Chart - Created Using FXCM Marketscope 2.0

  • Bullish Channel Takes Shape Following Double-Bottom
  • Relative Strength Index Maintains Upward Trend From May
  • Interim Resistance: 0.9670 (61.8% expansion) to 0.9715 (50.0% retracement)
  • Interim Support: 0.9250 (23.6% retracement) to 0.9290 Pivot

Impact that China 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)

2Q 2013

07/15/2013 02:00 GMT

7.5%

7.5%

-13

-8

2Q 2013 China Gross Domestic Product

Forex_Bullish_AUD_Setup_in_Focus_as_China_3Q_GDP_Picks_Up_body_ScreenShot254.png, Bullish AUD Setup in Focus as China 3Q GDP Picks Up

China slowed during the second-quarter, with GDP climbing 7.5% versus the 7.7% rate of growth seen during the three-months through June, and the region continues to face a risk for a ‘hard-landing’ amid the threat of an asset-bubble. Despite the in-line print, the slower rate of growth dragged on the Australia dollar, with the AUDUSD slipping back below the 0.9100 handle, and the pair remained rather weak throughout the day as the pair closed at 0.9096.

--- 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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