Chinese Gross Domestic Product (GDP) is a measurement of the production and growth of the economy, and analysts consider it to be one the most important indicators of economic activity. A reading which is higher than the market forecast is bullish for the Australian dollar.

Indicator Background

Chinese GDP is released quarterly, and provides an excellent indication of the health and direction of the Chinese economy. Traders should pay close attention to this key release, as China is Australia’s number one trading partner, and an unexpected reading can affect the direction of AUD/USD.

Chinese GDP growth is very high in comparison with the major industrialized countries. However, the indicator has pointed to slower growth for the past ten consecutive quarters, with the previous release coming in at 7.4%. The markets are anticipating a rise for Q4 of 2012, with an estimate of 7.8%. If the forecast proves accurate, and the long downward trend does reverse itself, this would be a major development that would likely boost the Australian dollar.

Sentiments and levels

The Australian dollar has looked sharp since late-December, having gained around two cents in that short time. The aussie has gained momentum since the fiscal cliff agreeement in early January. US data continues to be mixed, while recent Australian data, such as New Motor Vehicle Sales, has been positive. If the upcoming Australian employment numbers do not fall below expectations, the Aussie could continue to rally. Thus, the overall sentiment is bullish on AUD/USD towards this release.

Technical levels, from top to bottom: 1.0850, 1.0739, 1.0605, 1.0508, 1.0418 and 1.0326.

5 Scenarios

  1. Within expectations: 7.4% to 8.2%: In such a case, AUD/USD is likely to rise within range, with a small chance of breaking higher.

  2. Above expectations: 8.3% to 8.7%: An unexpected higher reading can send the pair above one resistance line.

  3. Well above expectations: Above 8.7%: The likelihood of such a sharp expansion is low. Such an outcome would push the pair upwards, and a second resistance line might be broken as a result.

  4. Below expectations: 6.9% to 7.3%: A sharper decrease than forecast could push AUD/USD downwards and break one level of support.

  5. Well below expectations: Below 6.9%: A very poor reading would likely have a negative impact on the Australian dollar. This outcome could push the pair below a second support level.