Australian Q2 GDP Expected to be Modest

September 6, 2016

The RBA rate decision was announced this morning, as unchanged at 1.5%, in line with consensus. This was the Governor Glenn Stevens’ final RBA policy meeting before handing over to Deputy Governor Philip Lowe. The RBA has cut interest rates twice in the past four months. Most economists predict that the RBA will keep rates steady until the end of the year, as they assess the effectiveness of previous cuts. Yet if the Aussie keeps on strengthening, then the chance of a further rate cut will be increased.

The Australian Current Account Balance in Q2, released this morning, was -15.50 billion, beating expectations of -19.75 billion. The Australian Current Account Deficit has shown an uptrend since Q4 in 2014. The positive figure helped the Aussie break the major resistance at 0.7600 and the uptrend line resistance this morning. It is currently holding above the 50.0% Fibonacci retracement level at 0.7625, and testing the next resistance level, the 61.80% Fibonacci retracement level, at 0.7656, where also the next downtrend line resistance situates.

The Australian Q2 GDP (YoY and QoQ), will be released at 01:30 am GMT, on Wednesday 07th September. The Australian Q1 2016 GDP (YoY) rose slightly to 3.1%, from 3.0% in Q4 2015, marking the third straight rise since Q2 2015. The Australian Q1 2016 GDP (QoQ) rose to 1.1%, from 0.6% in Q4 2015. The market expectation is for 0.4% growth.

The housing market, consumer spending and public demand continue to be robust. Business investment remains weak as mining investment falls sharply, as a result of the cancellation of the large scale of LNG projects (liquefied natural gas). Net exports are expected to slowdown in Q2.

Australian economic data released yesterday showed positive signals. The Q2 Company Gross Operating Profits (QoQ) was up remarkably by 6.9%, from -4.4% in Q1. The ANZ Job Advertisement for August was up 1.8%, from -0.8% in July. The expectation for the GDP in Q2, is to show modest growth.

As the US Non-Farm Payroll figure for August was weak, the chance of a Fed rate hike in September has faded. As a result, in near term the bullish momentum of the dollar will likely be reined in. Furthermore, if the upcoming US economic data underperforms, the Aussie will likely keep on strengthening.

If the Australian Q2 GDP figures are better-than-expected, the Aussie will likely rally and break the 0.7656 resistance level. The next resistance level is at 0.7700. With a lower-than-expected reading, the Aussie will likely retrace and test the support line at 0.7625, followed by 0.7610.

Keep an eye on the US ISM Non-Manufacturing PMI for August, to be released at 14:00 GMT today. With a positive reading, the dollar will likely strengthen, with lower-than-expected reading, the dollar will likely weaken.

We will get a series of economic data out of the UK, between 08:30 to 09:00 GMT on Wednesday 07th September, including the significant Bank of England Inflation Report, Industrial Production (YoY and MoM) for July, and Manufacturing Production (YoY and MoM) for July.

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