AUDUSD Rate Rebound Vulnerable to Record Low China GDP

Trading the News: China Gross Domestic Product (GDP)

Updates to China’s Gross Domestic Product (GDP) report may undermine the recent rebound in AUDUSD as the growth rate is anticipated to hit a record low in the first quarter of 2019.

A GDP print of 6.2% or lower would mark the slowest pace of growth since the data series began in 1992, and the weakening outlook for the Asia/Pacific region may drag on the Australian dollar as it puts pressure on the Reserve Bank of Australia (RBA) to further insulate the economy.

In turn, the RBA may keep the door open to implement another rate cut in 2019 as “the risks to the global economy are tilted to the downside,” and Governor Philip Lowe and Co. may continue to endorse a dovish forward guidance at the next meeting on August 6 amid the ongoing trade dispute between the US and China, Australia’s largest trading partner.

In contrast, an above-forecast GDP print for China may fuel the recent rebound in AUDUSD as it curbs bets for another RBA rate cut, with the exchange rate at risk of testing the monthly-high (0.7048) as it extends the series of higher highs and lows from last week.

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

1Q 2019 China Gross Domestic Product (GDP)

AUD/USD 10-Minute Chart

China grew another 6.4% during the first quarter of 2019 to match the slowest pace of growth since 2009, with economic activity increasing 1.4% during the first three-months of the year after expanding 1.5% during the previous period. It seems as though China’s economy will continue to face headwinds amid the ongoing trade dispute with the United States, and it remains to be seen if a deal will be reached over the coming months as the Trump administration relies on tariffs and sanctions to push its agenda.

The Australian dollar gained ground following the in-line GDP print, with AUDUSD climbing above the 0.7200 handle, but the market reaction was short-lived as the exchange rate closed the day at 0.7179. Learn more with the DailyFX Advanced Guide for Trading the News.

AUD/USD Rate Daily Chart

• Keep in mind, the AUDUSD rebound following the currency market flash-crash has been capped by the 200-Day SMA (0.7091), with the exchange rate marking another failed attempt to break/close above the moving average in April.
• More recently, the advance from June-low (0.6832) appears to have stalled ahead of the May-high (0.7061), but need a break/close below the 0.6950 (61.8% expansion) to 0.6960 (38.2% retracement) region to bring the downside targets back on the radar.
• First area of interest comes in around 0.6850 (78.6% expansion) to 0.6880 (23.6% retracement) followed by the 0.6730 (100% expansion) region.

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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.