Slowing Australia GDP to Spur AUD/USD Losses, Bets for RBA Rate-Cut

- Australia Gross Domestic Product to Slow for First Time Since 2Q 2015.

- Will Fears of Slower Growth Push the RBA to Further Embark on Its Easing Cycle?

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Trading the News: Australia Gross Domestic Product (GDP)

Australia’s 1Q Gross Domestic Product (GDP) report is expected to show the growth rate slowing to an annualized 2.8% following the 3.0% expansion during the last three-months of 2015, and a dismal development may undermine the near-term rebound in AUD/USD as it puts increased pressure on the Reserve Bank of Australia (RBA) to further assist with the rebalancing of the real economy.

What’s Expected:

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Why Is This Event Important:

After cutting the Official Cash Rate (OCR) to a fresh record-low of 1.75% in May, fears of a slowing recovery may prompt RBA Governor Glenn Stevens to implement another rate-cut over the coming months as the central bank endorses a dovish outlook for monetary policy and warns ‘inflationary pressures are lower than expected.’

Expectations: Bearish Argument/Scenario

Slowing consumption accompanied by the decline in business investment may drag on the GDP figure, and a sharp slowdown in economic activity may trigger a bearish reaction in the Australian dollar as it fuels bets for additional monetary support.

Risk: Bullish Argument/Scenario

However, the improvement in the terms of trade paired with the ongoing expansion in the labor market may foster a better-than-expected growth report, and a positive outcome may generate a larger rebound in AUD/USD as market participants scale back bets for another RBA rate-cut in 2016.

How To Trade This Event Risk(Video)

Bearish AUD Trade: Growth Rate Slows to Annualized 2.8% or Lower

• Need red, five-minute candle following the report for a potential short AUD/USD trade.
• If market reaction favors a bearish 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: Australia GDP Report 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 reverse.

Potential Price Targets For The Release

AUD/USD Daily

Chart - Created Using FXCM Marketscope 2.0

• AUD/USD may continue to give back the advance from January as it fails to preserve the upward trend from earlier this year, but the aussie-dollar may face a near-term rebound as the Relative Strength Index (RSI) fails to break below 30 and consolidates ahead of oversold territory.
• Key Resistance: 0.7848 (June 2015 high) to 0.7860 (61.8% expansion)
• Key Support: 0.6826 (2016 low) to 0.6830 (161.8% expansion)

Check out the short-term technical levels that matter for AUD/USD heading into the report!

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Impact that the Australia Employment report has had on AUD during the last quarter

4Q 2015 Australia Gross Domestic Product (GDP)

AUD/USD 5-Minute Chart

The Australian economy grew an annualized 3.0% during the last three-months of 2015 to mark the fastest pace of growth since the first-quarter of 2014. At the same time, the Gross Domestic Product (GDP) reading for the third-quarter was revised higher to an annualized 2.7% from an initial reading of 2.5%, but the below-trend growth may encourage the Reserve Bank of Australia (RBA) to further assist with the rebalancing of the real economy amid the weakening outlook for inflation. Nevertheless, the Australian dollar tracked higher following the better-than-expected GDP report, with AUD/USD climbing above the 0.7200 handle to end the day at 0.7293.

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--- Written by David Song, Currency Analyst

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

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