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Strong Australia 3Q GDP to Fuel AUD/USD Rally- Oct. High on Tap?

Strong Australia 3Q GDP to Fuel AUD/USD Rally- Oct. High on Tap?

David Song, Shuyang Ren,

- 3Q Australia GDP to Expand Annualized 2.4% After Marking Slowest Pace of Growth Since 4Q 2013.

- Will Faster Growth Encourage the RBA to Conclude Its Easing Cycle?

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

AUD/USD may continue to retrace the decline from earlier this year should Australia’s 3Q Gross Domestic Product (GDP) report highlight an improved outlook for the region and put increased pressure on the Reserve Bank of Australia (RBA) to conclude its easing cycle.

What’s Expected:

AUD/USD 3Q GDP

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Why Is This Event Important:

Even though Governor Glenn Stevens keeps the door open to implement lower borrowing-costs, signs of a stronger recovery may encourage the RBA to preserve its current policy throughout 2016, and the central bank may sound less-dovish over the coming months as previous rate-cuts continue to work their way through the real economy.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Building Approvals (MoM) (OCT)

-2.5%

3.9%

Employment Change (OCT)

15.0K

58.6K

Retail Sales (MoM) (SEP)

0.4%

0.4%

The improvement in the labor market accompanied by the rebound in household consumption may generate a stronger-than-expected growth rate, and a positive development may pave the way for a key reversal in AUD/USD as market participants adjust their outlook for monetary policy.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

BoP Current Account Balance (3Q)

-16.5B

-18.1B

Private Capital Expenditure (3Q)

-2.9%

-9.2%

NAB Business Confidence (3Q)

--

0

Nevertheless, waning confidence paired with the ongoing rebalancing in the real economy may drag on private-sector activity, and a dismal GDP figure may fuel speculation for additional monetary support amid the weakening outlook for growth global.

How To Trade This Event Risk(Video)

Bullish AUD Trade: GDP Expands Annualized 2.4.% or Greater

  • 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: Australia 3Q Growth Rate Falls Short of Market Forecast

  • 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.

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Potential Price Targets For The Release

AUD/USD Daily

AUD/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • AUD/USD stand at risk of a larger advance as it threatens the wedge/triangle formation from earlier this year; failure to retain the continuation pattern may foreshadow a key reversal in the exchange rate.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short AUD/USD since November 19, but the ratio has pushed to fresh extremes as it slips to -1.60, with 38% of traders now long.
  • Interim Resistance: 0.7380 (50% retracement) to 0.7390 (78.6% expansion)
  • Interim Support: 0.6830 (161.8% expansion) to 0.6860 (61.8% 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)

2Q

2015

09/01/2015 01:30 GMT

2.2%

2.0%

-10

-4

2Q 2015 Australia Gross Domestic Product(GDP)

AUD/USD Chart

Hampered by the slowdown China, Australia’s largest trading partner, the 2Q Gross Domestic Product (GDP) report showed the region expanding an annualized 2.0% to mark the slowest rate of growth since 2013. As the region continues to adjust to the slowdown in global trade, the Reserve Bank of Australia (RBA) may face increased pressure to further insulate the real economy as the central bank anticipants below-trend growth over the policy horizon. The bearish reaction in the Australian dollar was short-lived, with AUD/USD quickly climbing back above the 0.7000 handle to end the day at 0.7020.

Read More:

AUD/USD to Eye October High on Strong Australia 3Q Gross Domestic Product (GDP) Report

COT - Gold Ownership Profile Similar to Prior Price Lows

US DOLLAR Technical Analysis: USD Set To Outperform On Center Stage?

USD/CAD Technical Analysis: Bearish Wedge Pattern Running Out of Real Estate

Chinese PMI Falls as Fed Nears Rate Hike

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

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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