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AUD/USD Risks Fresh 2015 Lows on Dismal Australia 2Q GDP Report

AUD/USD Risks Fresh 2015 Lows on Dismal Australia 2Q GDP Report

2015-09-01 21:00:00
David Song, Shuyang Ren,
Share:

- 2Q Australia GDP to Expand Annualized 2.2%- Slowest Pace of Growth Since 4Q 2013.

- With Growth Slowing for the Fifth Consecutive Quarter, Will RBA Become Dovish?

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

Trading the News: Australia Gross Domestic Product (GDP) Report

The near-term decline in AUD/USD may gather pace over the next 24-hours of trade as Australia’s 2Q Gross Domestic Product (GDP) report is expected to show the growth rate slowing for the fifth consecutive quarter, which may put increased pressure on the Reserve Bank of Australia (RBA) to further embark on its easing cycle.

What’s Expected:

AUD/USD 2Q GDP

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Why Is This Event Important:

Even though the RBA continues to endorse a wait-and-see approach in September, signs of a slowing recovery may push Governor Glenn Stevens to further insulate the real economy, and the central bank may steer towards lower borrowing-costs amid the weakening outlook for global growth.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Net Exports of GDP (2Q)

-0.30

-0.60

Private Capital Expenditure (2Q)

-2.5%

-4.0%

Investment Lending (JUN)

--

-0.7%

The ongoing slump in business investments along with the slowdown in global trade may continue to drag on the Australian economy, and a dismal GDP print may trigger fresh 2015 lows in AUD/USD as it fuels speculation for an RBA rate cut.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Building Approvals (MoM) (JUL)

3.0%

4.2%

Employment Change (JUL)

10.0K

38.5K

Retail Sales ex Inflation (QoQ) (2Q)

0.4%

0.8%

Nevertheless, stronger job growth paired with the pickup in private consumption may generate a positive development, and a stronger-than-expected growth report may keep the RBA on the sidelines and trigger a near-term rebound in the Australian dollar as it boosts interest rate expectations.

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How To Trade This Event Risk(Video)

Bullish AUD Trade: RBA Continues to Endorse Wait-and-See Approach

  • Need green, five-minute candle following the rate decision for a potential long AUD/USD trade.
  • If market reaction favors a bullish 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: Governor Stevens Shows Greater Willingness for Lower Borrowing-Costs

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

Read More:

AUD/NZD: Rinse & Repeat- Reversal Scalp Back in Play Ahead of GDP

AUD/USD Struggles to Hold Range Even as RBA Remains on Hold

Potential Price Targets For The Release

AUD/USD Daily

AUD/USD Risks Fresh 2015 Lows on Dismal Australia 2Q GDP Report

Chart - Created Using FXCM Marketscope 2.0

  • Close below near-term support around 0.7030 (2015 low) to 0.7090 (78.6% retracement) raises the risk for a further decline in AUD/USD especially as the Relative Strength Index (RSI) retain the downward trend, with the oscillator dipping into oversold territory.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-long AUD/USD since May 15, with the ratio approaching extremes as it climbs to +3.95 as 80% of traders are long.
  • Interim Resistance: 0.7570 (50% expansion) to 0.7590 (100% expansion)
  • Interim Support: 0.6970 (50% expansion) to 0.6950 (161.8% expansion)

Impact that the Australia GDP 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)

1Q

2015

06/03/2015 01:30 GMT

2.1%

2.3%

+29

+35

1Q 2015 Australia Gross Domestic Product(GDP)

AUD/USD Chart

The Australian economy grew more-than-expected during the first quarter of 2015, with the growth rate climbing an annualized 2.3% after expanding a revised 2.4% in the last three-months of the previous year. Despite the upside surprise, the Reserve Bank of Australia (RBA) may largely retain the verbal intervention on the local currency while keeping the door open for additional rate cuts as the central bank continues to see below-trend growth over the policy horizon. Nevertheless, AUD/USD surged higher following the GDP print, but the lack of follow-through behind the market reaction spurred a short-term pullback in the exchange rate, with the pair closing the day at 0.7785.

--- 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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