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AUD/USD to Eye 0.7720 Support on Dismal Australia GDP Report

AUD/USD to Eye 0.7720 Support on Dismal Australia GDP Report

David Song, Shuyang Ren,

- Annualized 2.5% Expansion in Australia 4Q GDP Would Mark the Slowest Rate of Growth for 2014.

- Will RBA Governor Glenn Stevens Deliver Additional Rate Cuts in 2015?

For more updates, sign up for David's e-mail distribution list.

Trading the News: Australia Gross Domestic Product (GDP)

The rebound in AUD/USD following the Reserve Bank of Australia (RBA) interest rate decision may quickly unravel should the 4Q Gross Domestic Product (GDP) report heighten bets for another rate cut in the first-half of 2015.

What’s Expected:

AUD/USD GDP

Click Here for the DailyFX Calendar

Why Is This Event Important:

Despite the range-bound price action in AUD/USD, a marked slowdown in the annualized growth figure may fuel bets for lower borrowing-costs and spur a more meaningful move back towards the February low (0.7625) as RBA Governor Glenn Stevens endorses a highly dovish forward-guidance for monetary policy.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Company Operating Profit (QoQ) (4Q)

0.5%

-0.2%

Private Capital Expenditure (4Q)

-1.6%

-2.2%

NAB Business Confidence (4Q)

--

2

Waning business confidence along with slowdown in investments may heighten the bearish sentiment surrounding the Australian dollar, and the range-bound price in AUD/USD may ultimately give way as market participants anticipate the RBA to further embark on its easing cycle.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Building Approvals (MoM) (JAN)

-2.0%

7.9%

Home Loans (MoM) (DEC)

2.0%

2.7%

Retail Sales ex Inflation (QoQ) (4Q)

1.1%

1.5%

However, the pickup in household spending and building activity may encourage an upbeat GDP print, and a faster rate of growth may limit the RBA’s scope to offer lower borrowing-costs as the economy gets on a firmer footing.

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How To Trade This Event Risk(Video)

Bearish AUD Trade: 4Q GDP Slows to Annualized 2.5% or Lower

  • Need red, five-minute candle following the GDP print for a potential short AUD/USD trade
  • If market reaction favors a bearish trade, sell AUD/USD 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: Australia Growth Report Exceeds Market Forecast

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

Read More:

March Forex Seasonality Sees US Dollar Rally Stunted

Price & Time: Downside Break in the Euro Before Payrolls?

Potential Price Targets For The Release

AUD/USD Daily Chart

AUD/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • The RBA’s dovish forward-guidance should continue to limit the topside and favors the approach to ‘sell bounces’ in AUD/USD as the Fed remains on course to normalize monetary policy.
  • Interim Resistance: 0.8020 (38.2% expansion) to 0.8040 (61.8% retracement)
  • Interim Support: 0.7720 (161.8% expansion) to 0.7740 (78.6% expansion)

Impact that Australia’s GDP report has had on AUD during the last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

3Q 2014

12/03/2014 0:30 GMT

3.1%

2.7%

-49

-45

3Q 2014 Australia Gross Domestic Product (GDP)

AUD/USD Chart

The Australia economy grew another annualized 2.7% during the three-months through September following a downward revision to the 3Q GDP figures. The slowdown was largely driven by sliding commodity prices along with a decline in fixed investment. The slowing recovery may put increased pressure on the the Reserve Bank of Australia (RBA) to further assist with the rebalancing of the real economy amid the weakening outlook for global growth. The disappointing GDP prints dragged on the Australian Dollar, with AUD/USD slipping below the 0.8400 handle before ending the day at 0.8407.

--- 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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