Aussie traders, huddle up! We’ve got a top-tier catalyst comin’ up from the Land Down Under in the form of a quarterly GDP report.
If you’re thinking of trading this release on June 6 at 1:30 am GMT, then make sure you take note of these factors!
But first, what the heck is a GDP report?
The gross domestic product (GDP) is the most widely-used measure of economic growth rate. Forex traders pay attention to GDP releases because central banks also look at GDP components and their trends for clues on how to proceed with their monetary policies.
In Australia, it’s the Australian Bureau of Statistics (ABS) that prints a GDP report about two months after a quarter ends.
What happened last time?
The economy clocked in at 0.4% growth in Q4 2017, slower than the expected 0.5% uptick and Q3’s 0.7% expansion. This put 2017’s growth to 2.4%, which is also lower than the upwardly revised 2.9% figure in Q3 2017 and expectations of a 2.5% jump.
Apparently, it was household consumption and government spending that pushed growth higher while other major factors didn’t contribute much to the economy.
The headline miss only made a temporary dent on the Aussie, however, probably because traders were more focused on the RBA being happy with a strong household consumption number.
What are traders expecting this time?
Almost everyone and his/her momma are expecting to see stronger growth in Q1 2018. Not only that, but they’re expecting a sharp 0.8% to 0.9% quarterly growth after Q4 2017’s 0.4% increase and an annualized jump of 2.8% after last quarter’s 2.4% figure.
The RBA itself shares the optimism, sharing that:
“The recent data on the Australian economy have been consistent with the bank’s central forecast for GDP growth to pick up, to average a bit above 3 percent in 2018 and 2019.”
And why not? Data printed in the last couple of days put government spending up by 1.6% in the quarter, which the ABS says could add 0.3 percentage points to the GDP. A separate report reflected exports surpassing imports, enough to probably add another 0.35 percentage points to overall growth.And then there’s yesterday’s corporate data, which showed profits increasing so strongly that wages and salaries also received noticeable boosts. Heck, even the inventory part improved so much that it’s expected to add 0.2 percentage points to tomorrow’s figure!
The only “uncertain” part is household consumption which not only makes up about 57% of the GDP report but also won’t be released until AFTER the GDP numbers are revealed.
Recall that the RBA thinks household consumption is a “continuing source of uncertainty” as growth in household debts outpaces growth in household income. For now, the biggest clue we have is retail sales which is estimated to have grown by 0.2% over the quarter.
How might the Aussie react?
The initial reaction of AUD pairs to the quarterly GDP report doesn’t tend to last, possibly because traders are still holding out for revisions later on.
In the Q4 2018 release, traders were a wee bit busy pricing in Gary Cohn’s resignation, as well as trade war fears (or the easing thereof) over Trump’s tariff plans.
Q3’s release also didn’t make any lasting impression, as traders went back to looking at gold prices for cues a few hours after the report was printed.
How can I trade the report?
Based on Australia’s leading indicators, it looks like we’re about to see the economy’s acceleration in Q1 2018. But before you buy the Aussie like there’s no tomorrow, there are a couple of factors you need to watch out for:
First is a downside surprise. The largest component of the GDP – household consumption – is not a done deal yet, and could still drag the overall figure below the 0.8% to 0.9% estimates.
Then there are other catalysts, such as geopolitical and global trade-related updates that could influence the Aussie’s price action more than the GDP report can.
Last but not the least is your good ‘ol profit-taking. With almost all traders expecting (and pricing in?) a strong release, and with the event candle unlikely to dictate the Aussie’s direction for long, a lot of traders could take profits and leave you hanging.