Australian Q3 GDP Preview: Data could cement further rate cuts from RBA and weigh on AUD


  • AUD/USD capped at a key 61.8% Fibonacci level of 0.6862 post-RBA rally.
  • RBA statement confirms RBA on hold, but dovish bias persists.
  • GDP data could give the market a case for further rate cuts.
  • Bulls will seek a break of 2019 trendline around 0.6930. 
  • Bears will look to break below the 50-day moving average ahead of a run to 0.6724 October 16 low.

So, we will have had a triple whammy this week for Aussie traders by the time today's domestic Gross Domestic Product data is released. The event is scheduled for 00:30 GMT. Australia's GDP figures are forecast to have shown a small slowing in growth from last quarter, with growth printing at 0.3% QoQ and annual growth slowing to 1.5% YoY - not a bullish case for the nation's battered currency. However, the RBA statement gave a kick start to the bulls, but the GDP data may make for a shortlived time spent at the key 61.8% Fibonacci level of 0.6862.

Description

The Gross Domestic Product released by the Australian Bureau of Statistics is a measure of the total value of all goods and services produced by Australia. The GDP is considered as a broad measure of economic activity and health for which the RBA keenly monitors for its monetary policy decisions. While prospects of the need for quantitative easing from the Reserve Bank of Australia, it hasn't taken long for the market's attention to revert back to the bigger picture for a second glace. The likelihood of such drastic measures definitely depends on this week's critical data and will be a crucial event for the Aussie. A rising trend in GDP has a positive (or bullish) effect on the AUD, while a falling trend is seen as negative (or bearish) for the AUD. 

AUD market backdrop and conditions

For some background on the currency and current market conditions, the Australian dollar has had its fair share of the market's supply of late. 

The currency had taken a blow from the highest levels since the mid-summer levels on the 0.69 handle to below a 61.8% Fibonacci retracement of the said month to date range while supported down in the 0.6750s. The Chinese manufacturing double whammy coupled with weakness in US data gave the bull's a pre-Reserve Bank of Australia boost from 0.6785 and the vicinity of the 200-hour moving average's resistance area and onto a high of 0.682. AUD/USD consolidated there during Asia ahead of the RBA. 

Since the RBA, the currency has seen a fresh three-week high meeting a 61.8% Fibonacci retracement of the late Oct swing highs and late November low. The price was rejected there and sent back to a pre-GDP data 50% mean reversion level of the same range at 0.6840. There had also been some downside back to the 21-hour moving average support at 0.6815.

Indeed, the RBA was a consideration for traders yesterday, but knowing that the GDP was yet to come, the central bank was unlikely to make any major call of any sort. Markets had only been factoring in around a 10% chance of easing at the December meeting.

RBA event, key notes

  • The RBA Board kept the cash rate at 0.75% in December.
  • The AUD and interest rates jumped on the statement.
  • AUD/USD was trading at 0.6820 and rallied to 0.6862.
  • The comment that “while the [global] risks are still tilted to the downside, some of these risks have lessened recently,” was a driver.
  • House prices "have also increased recently” was another positive in the statement. 
  • The statement about employment continuing “to grow strongly” has been removed entirely, yet market did not seem to capture that and could be a risk going forward. 
  • In the statement, the change to the last paragraph was made, stating,  “the long and variable lags in the transmission of monetary policy” – could also have been a bullish factor for AUD as being a reason to hold. 

GDP expectations

One of the top leading indicators for Australian GDP are the business indicators. These have been generally disappointing for Q3. 

Analysts at ANZ Bank explained that the business inventories and profits both missed expectations by a solid margin, while overall sales volumes fell." Small business profits and wages grew moderately. Together, these numbers suggest some downside risk to our Q3 GDP forecast of 0.6% q/q, due on Wednesday", the analysts argued. 

Other indicators to consider would be manufacturing, unemployment claims, trade balance (with a particular focus on the net export contribution to growth), retail sales and consumer confidence. On balance, all of these areas have been at best, lacklustre, albeit at times showing some glimmers of improvements. Business and consumer confidence have been lifting and while exports have been a large factor in ensuring the economy is nowhere near a recession. However, the weakness of the private sector and the need for government spending have highlighted one of the weakest economies Australia has faced since the Global Financial Crisis. In fact, the last GDP figures showed the worst annual economic growth for 18-years – nothing has really improved.

Implications for RBA and AUD/USD

For today's release, the most optimistic of observers would be looking for improvements in overall growth, but the data needs to impress above expectations considering the weak inflation growth outlook which is tracking below potential. The nuts and bolts of the report will determine the market's forecast when it boils down the RBA's subsequent action in time to come. The markets will price in the data and RBA outlook into the Aussie. 

A slowing in quarterly growth will likely see further reassessments of the nation's forecasts and will likely spark-up a dovish bias/outlook, in contrast, the RBA's current take that the nation is at a ‘gentle turning point’ – ultimately a weight on the Aussie

Analysts at the National Bank of Australian are less optimistic than the RBA in saying that growth will return to trend and that there will be an improvement in the unemployment rate:

"Consequently, we see the RBA cutting the cash rate by a further 25bps in February, with the risk of further cuts and a move to an unconventional policy by mid-year should a material fiscal stimulus fail to materialise."

AUD/USD daily chart

AUD/USD levels to consider 

Bullish targets

  • 0.6861
  • 0.6890
  • 0.6920
  • 0.7030

Bearish targets

  • 0.6815/30
  • 0.6780
  • 0.6724
  • 0.6671

On a bullish outcome for AUD, working our way in on the widest projection, taking into consideration the Fibonacci retracements targets of the 2018-YTD range, AUD/USD bulls will seek a break of the 2019 downtrend around 0.6890 ahead of the descending 200-day moving average located around 0.6920 before hunting down the 23.6% Fibo of said range, located around 0.7030. First, the 61.8% Fibonacci retracement of the late Oct swing highs and late November low at 0.6861 needs to give. The price was rejected thereafter the RBA and sent back to a pre-GDP data 50% mean reversion level of the same range at 0.6840.

On a bearish outcome, initial support offered by the 50-day moving average and convergence of the 21-hour moving average comes in at around the day's lows of between 0.6815/30.  We then have the 4-hour convergence of the 50 and 21 4-hour moving averages around 0.6780. This is a level that guards the next level of support at 0.6724 October 16 low ahead of the 0.6671 October low. 

AUD/USD

Overview
Today last price 0.684
Today Daily Change 0.0014
Today Daily Change % 0.21
Today daily open 0.6826
 
Trends
Daily SMA20 0.6819
Daily SMA50 0.6806
Daily SMA100 0.682
Daily SMA200 0.6921
 
Levels
Previous Daily High 0.6826
Previous Daily Low 0.6762
Previous Weekly High 0.68
Previous Weekly Low 0.6754
Previous Monthly High 0.6929
Previous Monthly Low 0.6754
Daily Fibonacci 38.2% 0.6802
Daily Fibonacci 61.8% 0.6786
Daily Pivot Point S1 0.6783
Daily Pivot Point S2 0.674
Daily Pivot Point S3 0.6718
Daily Pivot Point R1 0.6847
Daily Pivot Point R2 0.6869
Daily Pivot Point R3 0.6912

 

 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD retreats after strong NFP, weak German data

EUR/USD is trading below   1.11 after US Non-Farm Payrolls beat expectations with 266K and mixed wage growth. Earlier, weak German data weighed on the euro. Updates on trade are awaited.

EUR/USD News

GBP/USD shrugs off strong NFP, focuses on UK elections

GBP/USD is trading below 1.3150 but off the post-NFP lows. The US gained more jobs than expected. The Conservatives remain in the lead ahead of the debate between PM Johnson and Labour leader Corbyn.

GBP/USD News

US recession? Not so fast, a calm look at the economy and currencies ahead of the NFP

Recent US economic indicators have been downbeat, but they include silver linings and are backed by robust consumption. Valeria Bednarik, Joseph Trevisani, and Yohay Elam...

Read more

Gold drops to fresh multi-day lows on upbeat NFP report

Gold faded an intraday bullish spike to the $1480 area and tumbled to fresh multi-day lows, around the $1465 region in reaction to upbeat US monthly jobs report.

Gold News

USD/JPY: bearish ahead of US employment figures

Japanese data missed the market’s expectations, triggering fresh concerns about the economy. Focus on US employment figures, market players anticipate dismal numbers. USD/JPY is technically bearish could break below the 108.00 level.

USD/JPY News

Forex Majors

Cryptocurrencies

Signatures