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AUD/USD to Face Larger Rebound on Upbeat Australia 3Q GDP Report

AUD/USD to Face Larger Rebound on Upbeat Australia 3Q GDP Report

2014-12-02 22:00:00
David Song, Shuyang Ren,
Share:

- Australia Economy to Grow Another Annualized 3.1% in Third-Quarter.

- 3Q GDP of 0.7% Would Mark the Second Uptick for 2014.

Trading the News: Australia Gross Domestic Product (GDP)

Australia’s 3Q Gross Domestic Product (GDP) report may spark a near-term rebound in AUD/USD as market participants anticipate a faster rate of growth in the $1T economy.

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What’s Expected:

AUD/USD GDP

Click Here for the DailyFX Calendar

Why Is This Event Important:

Indeed, an uptick in the growth rate may heighten appeal of the higher-yielding currency as the Reserve Bank of Australia (RBA) moves away from its easing cycle, and the central bank may face increased pressure to normalize monetary policy sooner rather than later should the GDP highlight a stronger recovery.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Company Operating Profit (QoQ) (3Q)

-1.3%

0.5%

Private Capital Expenditure (3Q)

-1.9%

0.2%

Retail Sales ex Inflation (QoQ) (3Q)

0.5%

1.0%

The rebound in business and household spending may generate a better-than-expected GDP report, and a positive print may ultimately boost interest rate expectations as RBA Governor Glenn Stevens remains upbeat on the economy.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Construction Work Done (3Q)

-1.9%

-2.2%

Wage Price Index (QoQ) (3Q)

0.6%

0.6%

Home Loans (MoM) (SEP)

-0.4%

-0.7%

However, the growth report may fall short of market expectations on the back of weak wage growth paired with the slowdown in building activity, and the Australian dollar remains at risk of facing additional headwinds over the near to medium-term as the central bank retains the verbal intervention on the local currency.

How To Trade This Event Risk(Video)

Bullish AUD Trade: 3Q GDP Expands 0.7% or Greater

  • Need a green, five-minute candle subsequent to the release for a potential long AUD/USD trade
  • If market reaction favors a long aussie trade, buy AUD/USD 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 breakeven on remaining position once initial target is met, set reasonable limit

Bearish AUD Trade: Growth Report Disappoints

  • Need red, five-minute candle to favor a short AUD/USD position
  • Carry out the same setup as the bullish aussie trade, just in reverse

Read More:

Scalping the AUDNZD Rebound- Key Resistance 1.09

December Forex Seasonality Sees USD Strength into Year End

Potential Price Targets For The Release

AUD/USD Daily Chart

AUD/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Downside targets remain favored amid the ongoing series of lower highs & lows.
  • Interim Resistance: 0.8710 (78.6% retracement) to 0.8730 (23.6% expansion)
  • Interim Support: 0.8390 (78.6% expansion) to 0.8410 (100% expansion)

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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)

2Q 2014

09/03/2014 01:30 GMT

0.4%

0.5%

-1

+28

2Q 2014Australia Gross Domestic Product (GDP)

AUD/USD Chart

The Australian economy grew a marginal 0.5% in the second quarter after expanding 1.1% during the first three-months of the year to mark the first downtick since 4Q 2012. The slowdown was largely attributed to weaker mining investment, falling commodity prices and subdued consumer spending. As a result, it seems as though the Reserve Bank of Australia (RBA) will retain its wait-and-see for an extended period of time as Governor Glenn Stevens looks to support the non-mining sectors. There was limited follow-through behind the initial bullish response as AUD/USD struggled to hold above the 0.9300 handle, but the higher-yielding currency regained its footing later in the day to close at 0.9307.

--- Written by David Song, Currency Analyst and Shuyang Ren

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

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