Australian GDP Preview: Prospects for a sustained economic recovery

The Australian economy is likely to extend its post-pandemic recovery in the final quarter of 2020, as the OZ nation has outperformed its Western peers in successfully combating the coronavirus resurgence.

The Reserve Bank of Australia’s ultra-loose monetary policy settings combined with the country’s early success in containing COVID-19 is expected to translate into the fourth quarter (Q4) GDP report due for release on Wednesday at 0030 GMT.

Australia’s GDP rate is expected to expand by 2.5% QoQ in Q4 when compared to a 3.3% growth recorded in the three months to September. Meanwhile, the economy is seen contracting 1.8% in the reported period vs. -3.8% booked in the third quarter.

Australian economic outlook improves in Q4

The economy is on a steady recovery path from the coronavirus pandemic-induced shock, helped by an improved outlook for the global economy due to the faster pace of vaccine rollout.

Strengthening recovery in the Australian labor market, unexpected rise in wages and a rebound in the private capital expenditure all point to the nation’s swift recovery from the economic downturn. Further, Australian government spending rose solidly again in the December quarter, adding 0.3 percentage points to GDP.

It’s also worth noting that a pick-up in the global trade and the surge in copper and iron-ore prices seems to have collaborated with the upbeat outlook on the economy. Further, China remains on a solid economic recovery, despite the recent disruptions due to the Lunar New Year holidays, pointing to sustained prospects for Australia’s economic rebound. The dragon nation is Australia’s biggest trading partner.

RBA holds fire, sounds upbeat on the economy

The Reserve Bank of Australia (RBA) maintained its Official Cash Rate (OCR) at a record low of 0.10% at its March monetary policy meeting held earlier on Tuesday. The central bank also kept its 3-year yield target unchanged, amid the recent surge in yields, adding that it “is prepared to make further adjustments to its purchases in response to market conditions.”

The RBA Governor Philip Lowe said in a statement following the monthly board meeting, "The economic recovery is well underway and has been stronger than was earlier expected.”

However, the central bank reiterated that the board will not raise interest rates until inflation is sustainably between 2%-3%, which is unlikely to occur until at least 2024.

AUD/USD Technical outlook

In the run-up to the GDP showdown, the AUD/USD pair consolidates around mid-0.7700s, having witnessed an impressive long unwinding last week. The recovery attempts in the aussie remain limited by broad-based US dollar strength amid worsening market mood.

The Australian growth numbers are likely to have a significant impact on the aussie pair, although the prevalent risk mood and US dollar dynamics could also influence the major’s reaction to the GDP release.

AUD/USD: Four-hour chart

From a technical perspective, the four-hour chart shows that AUD/USD has confirmed a bear flag breakdown. Although the sellers await a sustained move below the critical horizontal 200-simple moving average (SMA) at 0.7738 to resume the downward spiral towards 0.7600. The Relative Strength Index (RSI) points south while below the midline, suggesting that there is more room for the downside.

Only if the Australian Q4 GDP figure beats estimates by a big margin, it could save the day for the AUD bulls. AUD/USD could stage a comeback towards the powerful resistance at 0.7800, where the 21 and 100-SMAs converge. Overall, the path of least resistance appears to the downside for the aussie.