Can’t get enough of ’em top-tier forex catalysts for the Aussie? Well, we’ve got another big one coming our way with the Land Down Under’s Q4 GDP release. Here are some things you gotta keep in mind when trading this report:
1. Analysts recently downgraded their estimates
Earlier today, a bunch of headlines indicated that economists made downward revisions to their GDP estimates. Most analysts had been expecting to see a 0.5% quarterly growth figure, enough to yield an annualized 2.6% GDP reading, but the consensus median expectations based on Bloomberg’s survey dropped to just a 0.4% expansion or a 2.5% annual GDP figure.
Westpac analysts are even predicting a much weaker 0.3% growth figure, taking the downside surprises in inventories and net exports into account. According to economist Andrew Hanlan, total business investment likely contracted by 3.5% during the period while consumption probably contributed only a 0.5% gain.
This means that forex junkies are setting the bar a tad lower for tomorrow’s release, which suggests that a slightly weaker than expected report might not be too much of a surprise. Heck, most market participants are probably bracing themselves for a downbeat reading given how this week’s set of reports from Australia have been coming in mostly red so far!
2. Weaker industrial imports to weigh on investments component?
In addition to the weaker than expected quarterly company operating profits data, falling building approvals, and wider current account deficit we’ve seen in the past few days, I’ve also shared in my latest Forex Snapshot of Australia how imports of machinery and industrial equipment have been declining.
Industrial what now? Who cares?! The investment component of the quarterly GDP figure cares, that’s what. If that sounds alien to you, take a peek at this GDP formula in this Basic Forex Fundamentals Terms Cheat Sheet I’ve made.
Now these industrial imports have been declining in October and November, possibly taking a chunk out of the total GDP, but it remains to be seen whether the pickup in consumer spending around those same months would be enough to make up for the dent or not.
3. RBA officials ain’t too worried
For now, Governor Stevens and his gang of policymakers over at the Reserve Bank of Australia don’t seem to be too concerned about the slowdown in global growth, as they reiterated that there were reasonable prospects for a continued expansion in the domestic economy. In his official statement, RBA head honcho Stevens pointed out that the non-mining sector strengthened and that labor market conditions improved.
In fact, the RBA decided to keep interest rates on hold at 2.00% as expected while keeping the door open for further easing, although this decision appears to hinge mostly on inflation prospects. Their announcement didn’t even contain any hint of jawboning for the Aussie, which some forex participants also interpreted as a sign that the central bank is feeling more confident these days.
How might AUD forex pairs react?
By the looks of the Aussie’s forex price action lately, it seems as though traders have already priced in expectations of weaker growth, which means that a read between 0.3% to 0.5% might not be enough to spur more bearish action. Meanwhile, anything above the 0.5% estimate could serve as a huge upside surprise, likely underscoring the RBA’s view that there’s no need to be overly concerned just yet.
In any case, be on the lookout for additional volatility right around the time of the release, especially since news traders might be trying to place their orders before the actual event. If you’re not willing to expose your forex account to this type of event risk, there’s no shame in sitting on the sidelines and watching price action play out.