– Australia Economy to Grow at Faster Face for Second Straight Quarter.
– GDP of 0.9% Would Mark Largest Advance Since 1Q 2012.

Trading the News: Australia Gross Domestic Product (GDP)

The Australian economy is expected to grow another 0.9% during the first three-months of 2014, and a pickup in 1Q GDP may generate a near-term rally in the AUD/USD as the pair continues to consolidate above the 0.9200 handle.

What’s Expected:
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Why Is This Event Important:

Indeed, a positive GDP report may heighten the appeal of the Australian dollar as the Reserve Bank of Australia (RBA) retains a rather neutral tone for monetary policy, and Governor Glenn Stevens may continue to talk down bets for a rate cut as the central bank head remains upbeat on the $1T economy.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

HIA New Home Sales (MoM) (APR)

—

2.9%

Construction Work Done (1Q)

-0.5%

0.3%

Employment Change (APR)

8.8K

14.2K

The ongoing expansion in the housing market along with the pickup in employment may prompt a strong pickup in 1Q GDP, and a positive development may raise the scope for a bullish breakout in the AUD/USD as it fuels interest rate expectations.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Retail Sales (MoM) (APR)

0.3%

0.2%

Building Approvals (MoM) (APR)

2.0%

-5.6%

Inventories s.a. (QoQ) (1Q)

-0.4%

-1.7%

Nevertheless, the marked decline in 1Q inventories paired with the persistent weakness in private sector consumption may spur a slowdown in the growth rate, and a dismal GDP print may spur a key break below near-term support as it dampens the fundamental outlook for the Australian economy.

How To Trade This Event Risk(Video)

Bullish AUD Trade: 1Q GDP Climbs 0.9% or Greater
Need a green, five-minute candle subsequent to the release for a potential long AUD/USD trade
If market reaction favors a long aussie trade, buy AUD/USD with two separate position
Set stop at the near-by swing low/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

Bearish AUD Trade: Growth Rate Disappoints & Drags on Interest Rate Expectations
Need red, five-minute candle to favor a short AUD/USD position
Carry out the same setup as the bullish aussie trade, just in reverse

Potential Price Targets For The Release

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Chart – Created Using FXCM Marketscope 2.0
A Break Above 0.9330-40 Will Favor Bullish Forecast for AUD/USD
Interim Resistance: 0.9460-70 (23.6 expansion)
Interim Support: 0.9200 (100.0 expansion) to 0.9220 (61.8 retracement)

Impact that Australia GDP has had on AUD during the last quarter

Period

Data Released

Estimate

Actual

Pips Change
(1 Hour post event )

Pips Change
(End of Day post event)

4Q 2013

03/05/2014 0:30 GMT

0.7%

0.8%

-6

+33

4Q 2013 Australia Gross Domestic Product (GDP)

The Australian economy grew another 0.8% during the last three-months of 2013 following the 0.6% expansion in the third-quarter, and the faster recovery may heighten the appeal of the Australian dollar as it limits the RBA’s scope to further embark on its easing cycle. Despite the limited initial reaction to the 4Q GDP print, the AUD/USD regained its footing going into the European trade, with the pair closing the day at 0.8983.

Read More:
Price & Time: Crunch Time?
EURUSD Targets 2014 Lows Ahead of ECB/NFP- Opening Ranges in Focus

— Written by David Song, Currency Analyst

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

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Source: Daily fx