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According to Gross Domestic Product (GDP) report due to be published on Wednesday at 01:30 GMT, the Australian economy is set to contract 6% QoQ in the second quarter. On Monday, the Reserve Bank of Australia kept rates steady but delivered a dovish surprise. Heading into the release, AUD/USD is consolidating the rally to the highest levels since August 2018, reached above 0.7400 earlier this Tuesday.

Key quotes

“The Australian economy is expected to show a record 6% contraction n the second quarter (Q2). On an annualized basis, the GDP is likely to have shrunk by 5.3% vs. a 1.4% growth seen in the first quarter.”

“The RBA left the Official Cash Rate (OCR) unchanged at a record low of 0.25%. The OZ central bank, however, delivered a dovish surprise by expanding the size of its term funding facility to around AUD200 billion at 0.25% for three years. The dovish surprise by the RBA could be seen as a pre-emptive measure to support the economy, given the worst contraction expected since 1929.”

“As observed on the 4-hour chart, AUD/USD is trending in a potential pennant pattern while the RSI has pulled out of the overbought territory, with more scope to the upside. It’s also worth noting that the price trades above all the major Simple Moving Averages (SMA).”

“The aussie remains poised to extend the bullish momentum towards the August 2018 high of 0.7454. An economic shock is already priced-in and ‘buy the fact’ trading could play out on an in-line with expectations reading. However, a bigger-than-expected contraction could negate the near-term upside bias, dragging the pair towards the critical 0.7340 support, the confluence of the 21-SMA and Monday’s low.”

 

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