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Australian Dollar Recovery to Face Lowest GDP Print Since 2009

Australian Dollar Recovery to Face Lowest GDP Print Since 2009

2017-06-06 20:00:00
David Song, Currency Strategist
Share:

- Australia 1Q GDP to Expand Annualized 1.6%- Slowest Pace of Growth Since 2009.

-Will the Reserve Bank of Australia (RBA) Further Support the Economy?

Trading the News: Australia Gross Domestic Product (GDP)

Australia GDP

Despite the limited market reaction to the Reserve Bank of Australia (RBA) interest rate decision, the 1Q Gross Domestic Product (GDP) report may undermine the recent rebound in the AUD/USD exchange rate as the economy is expected to expand an annualized 1.6%, which would mark the lowest rate of growth since 2009.

Why Is This Event Important:

Signs of a slowing economy may push the Reserve Bank of Australia (RBA) to further support the real economy especially as ‘slow growth in real wages is restraining growth in household consumption,’ but it seems as though Governor Philip Lowe & Co. will look through the weakness as officials argue ‘economic growth is still expected to increase gradually over the next couple of years to a little above 3 percent.’ With that said, the RBA may preserve the record-low cash rate throughout 2017, and the central bank may look to gradually normalize monetary policy in the year ahead as ‘the transition to lower levels of mining investment following the mining investment boom is almost complete.’

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

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

4Q

2016

03/01/2017 00:30 GMT

2.0%

2.4%

+13

+27

4Q 2016 Australia Gross Domestic Product (GDP)

AUD/USD 5-Minute

AUD/USD Chart

Australia’s economy grew an annualized 2.4% during the last three-months of 2016 after expanding a revised 1.9% in the third-quarter, with the pickup in economic activity largely driven by an improvement in the terms of trade. The Australian dollar gained ground following the upbeat growth report, with AUD/USD climbing above the 0.7650 region to end the day at 0.7673.

How To Trade This Event Risk(Video)

Bearish AUD Trade: Growth Rate Slows to Annualized 1.6% or Lower

  • Need a red, five-minute candle following the GDP report to consider a short AUD/USD position.
  • If the market reaction favors a bearish aussie trade, sell AUD/USD with two separate lots.
  • 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 1Q GDP Exceeds Market Expectations

  • Need a green, five-minute candle to favor a long aussie trade.
  • Implement the same setup as the bearish AUD position, just in reverse.

Potential Price Targets For The Release

AUD/USD Daily

AUD/USD Daily Chart

Chart - Created Using Trading View

  • AUD/USD appears to be making a more meaningful attempt to break out of the downward trending channel carried over from March after failing to test the May-low (0.7329), and the Relative Strength Index (RSI) may highlight a similar dynamic as it comes up against trendline resistance.
  • Will keep a close eye on the topside targets as AUD/USD presses to fresh monthly highs and initials a fresh sequence of higher highs & lows, with a close above the 0.7530 (38.2% expansion) hurdle opening up the next region of interest around 0.7580 (38.2% retracement) to 0.7600 (23.6% retracement).
  • 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)

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IG Sentiment

Retail trader data shows 43.1% of traders are net-long AUD/USD with the ratio of traders short to long at 1.32 to 1. The number of traders net-long is 1.5% lower than yesterday and 7.2% lower from last week, while the number of traders net-short is 5.6% higher than yesterday and 1.7% lower from last week.For more information on retail sentiment, check out the new gauge developed by DailyFX based on trader positioning.

--- Written by David Song, Currency Analyst

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

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