AUD/USD: Trading the Chinese GDP Oct 2012

The Gross Domestic Product (GDP) is a measurement of the production and growth of the economy, and analysts consider GDP one the most important indicators of economic activity. A reading which is better than the market forecast is bullish for the Australian dollar.

Here are all the details, and 5 possible outcomes for AUD/USD.

Published on Thursday at 2:00 GMT.

Indicator Background

Chinese GDP is released quarterly, and provides an excellent indication of the health and direction of the economy.  Traders should pay close attention to this key release, as China is Australia’s number one trading partner, and an unexpected reading can quickly affect the direction of AUD/USD.

Chinese GDP growth is very high in comparison with the industrialized countries. However, the  indicator has  has  fallen for six consecutive quarters, and the  previous reading of 7.6% was its lowest in over three years.  The downward  trend is expected to continue, with a market forecast of 7.4% for the October release.

Sentiments and levels

The Australian dollar has not recovered from  its  beating after  the recent rate cut, which shocked the markets. Aside from the rate cut, there are other factors which could drive the aussie down towards parity, such as  falling commodity prices, weak employment and retail sales numbers, and a slowing Chinese economy. Thus, the overall sentiment  has turned from  neutral to bearish on AUD/USD towards this release.

Technical levels, from top to bottom: 1.04, 1.0340, 1.03, 1.0230, 1.0174 and 1.0080.

5 Scenarios

1. Within expectations: 7.0%to 7.8%: In such a case, AUD/USD is likely to rise within range, with a small chance of breaking higher.
2. Above expectations:  7.9% to 8.3%: An unexpected higher reading can send the pair above one resistance line.
3. Well above expectations: Above 8.3%: Given the current trend, the likelihood of a sharp expansion is low. Such an outcome would push the pair upwards, and a second resistance line might be broken as a result.
4. Below expectations:  6.5% to 6.9%: A sharper decrease than forecast could push AUD/USD downwards and break one level of support.
5. Well below expectations: Below 6.5%: A very poor reading would likely hurt the Australian dollar. This outcome could push the pair below a second support level.

For more about the aussie, see the AUD/USD forecast.