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AUD/USD Capped by 0.7730 Hurdle; RSI Diverges Ahead Australia GDP

AUD/USD Capped by 0.7730 Hurdle; RSI Diverges Ahead Australia GDP

- Australia GDP to Rebound Following First Contraction Since 2011.

- Annualized Growth Rate to Recover From Lowest Reading Since 2009.

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Trading the News: Australia Gross Domestic Product (GDP)

Australia’s 4Q Gross Domestic Product (GDP) report may fuel the near-term rebound in AUD/USD as the growth rate is projected to increase 0.7% after contracting 0.5% during the last three-months of 2016.

What’s Expected:

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Why Is This Event Important:

A meaningful expansion in economic activity may heighten the appeal of the Australian dollar and encourage the Reserve Bank of Australia (RBA) to adopt a more upbeat tone at the next policy meeting on March 7 as ‘a return to reasonable growth is expected in the December quarter.’ With that said, Governor Philip Lowe and Co. may show a greater willingness to gradually move away from its easing-cycle, but the central bank appears to be in no rush to lift the official cash rate from the record-low as ‘the rise in underlying inflation expected to be a bit more gradual.’ In turn, it seems as though the RBA bar remains high for the central bank to abandon its wait-and-see approach, and the committee may look to toughen the verbal intervention on the local currency as ‘an appreciating exchange rate would complicate this adjustment.’

Expectations: Bullish Argument/Scenario

Company Operating Profit (QoQ) (4Q)8.0%20.1%
Employment Change (JAN)10.0K13.5K
Trade Balance (DEC)A$2.000BA$3.511B

The record trade surplus paired with the ongoing expansion in the labor market may generate a meaningful pickup in the growth rate, and a better-than-forecast GDP report may push the aussie-dollar back towards the monthly high (0.7741) as it boosts interest-rate expectation.

Risk: Bearish Argument/Scenario

Construction Work Done (4Q)0.5%-0.2%
Wage Price Index (YoY) (4Q)1.9%1.9%
Retail Sales (MoM) (DEC)0.3%-0.1%

However, subdued wage growth accompanied by the slowdown in building activity may continue produce headwinds for the economy, and a dismal GDP print may spark a bearish reaction in the Australia dollar as it puts pressure on the RBA to further embark on its easing-cycle.

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How To Trade This Event Risk(Video)

Bullish AUD Trade: 4Q GDP Rebounds 0.7% or Greater

  • Need a green, five-minute candle following the release to favor a long AUD/USD trade.
  • If market reaction favors a long aussie trade, buy AUD/USD with two separate lots.
  • 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 Growth Report Disappoints

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

If you’re looking for trading ideas, check out our Trading Guides.

Potential Price Targets For The Release


AUD/USD Daily Chart

Chart - Created Using Trading View

  • Failure to test the November high (0.7778) raises the risk for a near-term correction in AUD/USD especially as the pair struggles to push above the 0.7730 (61.8% retracement) hurdle, while the Relative Strength Index (RSI) deviates with price; in turn, the pair may continue to face range-bound conditions ahead of the RBA’s next interest rate decision on March 7, but a break/close below 0.7650 (38.2% retracement) may open up the downside targets as the pair continues to operate within the 2016 range.
  • Interim Resistance: 0.7730 (61.8% retracement) to 0.7770 (61.8% expansion)
  • Interim Support: 0.7150 (161.8% expansion) to 0.7180 (61.8% retracement)

Impact the Australia GDP report has had on AUD/USD during the previous quarter

PeriodData ReleasedEstimateActualPips ChangePips Change
3Q 201612/07/2016 0:30 GMT-0.1%-0.5%-36+15

3Q 2016 Australia Employment

AUD/USD 10-Minute


Australia’s 3Q Gross Domestic Product (GDP) report showed a 0.5% decline in the growth rate, with the economy posting the first contraction since 2011. The annualized reading slowed to 1.8% from 3.1% in the second-quarter to mark the lowest reading since 2009, with the slowdown largely led by a decline in business investment, while private consumption increased 0.2% during the same period after expanding 0.6% during the three-months through June. The Australian dollar dipped below the 0.7450 region following the larger-than-expected contraction in the growth rate, but the market reaction was short-lived, with the pair ending the day at 0.7481.

Read More:

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--- Written by David Song, Currency Analyst

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

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.