AUD/USD to Eye 0.9200 Support on Dismal 2Q GDP Report

- Australia GDP of 0.4% Would Mark the Slowest Pace of Growth Since 1Q 2013.

- Economic Activity is Expected to Slow from the Highest GDP Print Since 1Q 2012.

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Trading the News: Australia Gross Domestic Product (GDP)

The AUD/USD may face a larger decline over the next 24-hours of trade should Australia's 2Q Gross Domestic Product (GDP) report drag on interest rate expectations.

What’s Expected:

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Why Is This Event Important:

It seems as though the Reserve Bank of Australia (RBA) has concluded its easing cycle as Governor Glenn Stevens sees a period of ‘interest rate stability,’ but the central bank may come under increased pressure to implement additional monetary support should the GDP report dampen the outlook for growth and inflation.

Expectations: Bearish Argument/Scenario

Rising unemployment along with the weakening outlook for global trade may spur a marked slowdown in the $1T economy, and a dismal GDP print may push the AUD/USD back towards the 0.9200 handle as it renews bets for more monetary easing.

Risk: Bullish Argument/Scenario

However, the pickup in private consumption paired with the ongoing expansion in building activity may generate a more meaningful expansion in the growth rate, and a positive development may spur a test of the August high (0.9373) as it raises the RBA’s scope to normalize monetary policy sooner rather than later.

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How To Trade This Event Risk(Video)

Bearish AUD Trade: 2Q GDP Slows to 0.4% or Lower

• Need red, five-minute candle following the report for a potential short AUD/USD trade
• If market reaction favors a short aussie trade, sell AUD/USD with two separate position
• 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: Growth Rate Exceeds Market Forecast

• Need green, five-minute candle to consider a long AUD/USD position
• Carry out the same setup as the bearish aussie trade, just in the opposite direction

Read More:

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Potential Price Targets For The Release

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AUD/USD Daily

Chart - Created Using FXCM Marketscope 2.0

• Downward Trend & Bearish RSI Momentum Remain in Play; 0.9200-10 Remains Key Support
• Interim Resistance: 0.9350 (50.0% retracement) to 0.9370 (50.0% expansion)
• Interim Support: 0.9260 (78.6% retracement) to 0.9280 (78.6% expansion)

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

1Q 2014 Australia Gross Domestic Product (GDP)

Australia’s economy expanded 1.1% during the first-quarter of 2014, accelerating from 0.8% during the last three-months 2013, with the figure beating the average estimate for a 0.9% clip. Strong exports contributed largely to the faster rate of growth, with net exports adding 1.4% points to the annualized Gross Domestic Product (GDP) figure. Nevertheless, it seems as though the RBA will continue to call for a period of interest rate stability amid bright signs coming out of the $1T economy. Despite the 20 pip jump in the AUD/USD, the initial reaction was short-lived, with the pair straddling the 0.9270 region throughout the Asia-Pacific trade.

--- 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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