AUD/USD: Trading the Chinese GDP July 2012

The Chinese Gross Domestic Product (GDP) measures production and growth of the economy. 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 Friday at 2:00 GMT.

Indicator Background

Chinese  GDP is released quarterly and  is an important indicator of the health and direction of the economy. Traders should pay close attention to this release, given that China is Australia’s number one trading partner.  Thus, a reading above or below the market forecast can affect the movement of AUD/USD.

The Chinese GDP  figures are staggering by Western standards, but  have been steadily dropping since last April 2010. No less important, the June reading of 8.1 % fell below the market forecast of 8.4%. The market estimate for July is another drop, to 7.9%. Will the indicator rebound and beat the prediction this month?

Sentiments and levels

The Australian dollar has looked sharp, gaining around  five cents since the first week of June. However, traders should keep in mind that the aussie had an even steeper loss in May, underscoring its reputation as a volatile currency. Australia continues to suffer from the global slowdown, but there have been some bright spots in the Australian economy, such as Building Approvals. Further positive economic  data in Australia or China  could bolster the Aussie. So, the overall sentiment is neutral on AUD/USD towards this release.

Technical levels, from top to bottom:  1.0340, 1.0230, 1.0174, 1.0080, 1.00 and 0.9917.

5 Scenarios

1. Within expectations: 7.6% to 8.2%. In such a scenario, AUD/USD is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 8.3% to 8.6%: An unexpected higher reading can push the pair  above one resistance line.
3. Well above expectations: Above 8.6%: A stronger reading than predicted is bullish for the aussie, and a second  line of resistance  might be broken as a result.
4. Below expectations: 7.2% to 7.5%: A lower GDP figure than predicted could  push AUD/USD downwards and break one level of support.
5. Well below expectations: Below 7.2%. A very weak reading  could hurt the Australian dollar, and  AUD/USD could break a second  support level.

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