Australian GDP overview

Baffled by the pandemic-led local lockdowns and the Reserve Bank of Australia’s (RBA) cautious optimism, not to forget the latest Omicron woes and hawkish Fed, AUD/USD traders gear up for Australia’s third-quarter (Q3) Gross Domestic Product (GDP) figures, up for publishing at 00:30 GMT on Wednesday.

The recent data from Australia have been downbeat and lockdowns are likely to weigh on the Aussie GDP figures. However, the RBA defends bond purchase tapering while staying cautiously optimistic on the economic growth.

Other than being the headline economic data, today’s GDP figures may have little importance as the covid strain woes and comments from Fed’s Powell seem to already weigh on the quote. Additionally, the growth figures are likely to show the lockdown-led economic loss which has little importance of late as the Pacific major has already jumped on the unlock path.

Forecasts suggest the annualized pace of economic growth to come in at +3.0%, below the previous period’s +9.6%, while the quarter-on-quarter (QoQ) numbers could mark the disappointment if easing to -2.7% versus 0.7% prior.

Ahead of the outcome, Westpac said:

The delta lockdowns in NSW and Vic have certainly harmed activity, but the damage is less than originally feared. A sharp fall in consumer spending and weakness in business investment is expected to be partially offset by support from home building and net exports. Westpac’s forecast of -2.5% broadly aligns with the market median.

TD Securities expects,

We expect the economy to contract sharply in Q3, with growth at -2.7% q/q, 3.0% y/y (forecast: -2.7%, 3.0%) due to the prolonged lockdowns in two of Australia biggest states (i.e., NSW and VIC). Based on RBA’s Nov SoMP forecasts, the Bank sees Q3 GDP coming in at -2.2% q/q, +3.5% y/y. However, we think Q3 GDP is likely to be weaker than the Bank’s expectations given a sharp plunge in consumption and lower fixed capital investments. 

How could it affect the AUD/USD?

AUD/USD holds on to the previous day’s rebound from a one-year low of around 0.7130 ahead of the key data release on Wednesday.

The consolidation in the market sentiment and mixed concerns over the covid strain could best be cited as the main catalysts for the pair’s latest corrective pullback.  On the latest basis, comments from China’s Vice Premier Liu He, expecting higher GDP growth for 2021, adds to the odds favoring recovery of the Aussie pair as it has dropped much since late October.

That said, today’s Aussie GDP is less likely to help the Reserve Bank of Australia (RBA) policymakers to make any key decision and hence may not help to forecast the AUD/USD prices much. However, a major positive surprise could offer a reason to the counter-trend traders as the quote struggles to drop below the yearly low.

While citing this, FXStreet’s Dhwani Mehta said, “Against the backdrop of the persistent covid worries, the reaction to the Australian GDP report could be limited, as broader market sentiment, yield dynamics and the influence of the greenback will continue to dominate the pair.”

Technically, AUD/USD holds onto corrective pullback from yearly low inside one-month-old bearish trend channel, taking rounds to an ascending trend line established since November 2020.

Although oversold RSI conditions triggered the much-awaited bounce, bearish MACD signals and downward sloping channel keeps sellers hopeful until the quote crosses the 0.7210 hurdle, including the stated channel’s upper line and 78.6% Fibonacci retracement (Fibo.) of November 2020 to February 2021 upside.

Key notes

Australian GDP Preview: September quarter contraction only a ‘setback’?

AUD/USD bears await for downside to resume again from 61.8% golden ratio

About the Aussie GDP release

The Gross Domestic Product released by the Australian Bureau of Statistics is a measure of the total value of all goods and services produced by Australia. The GDP is considered a broad measure of economic activity and health. A rising trend has a positive effect on the AUD, while a falling trend is seen as negative (or bearish) for the AUD.

  • USD/CAD retreats from 10-week top, struggles to extend rebound from late October.
  • Bullish MACD signals, two-week-old ascending trend line favor buyers.
  • 61.8% Fibonacci retracement, tops marked in September, August also challenge buyers.

USD/CAD bulls take a breather around the highest levels since late September, easing to 1.2780 during the early Asian session on Wednesday.

In doing so, the Loonie pair steps back from a downward sloping trend line stretched from October 2020 amid overbought RSI signals. Adding to the hopes of a pullback are the multiple strong resistances that challenge the quote’s run-up beyond the stated resistance line around 1.2795.

That said, the 1.2800 threshold and 61.8% Fibonacci retracement of September 2020 to June 2021 fall, at 1.2880, offer short-term challenges to the USD/CAD pair’s upside moves.

Even if the quote rises past 1.2880, tops marked during September and August, respectively around 1.2900 and 1.2950, also offer a bumpy road to the north.

Alternatively, pullback moves remain less worrisome until staying beyond a two-week-old support line, close to 1.2690 at the latest. Before that, 50.0% Fibo. level of 1.2710 may offer nearby support.

In a case where the USD/CAD prices drop below 1.2710, April’s high around 1.2655 and the early November’s top near 1.2605 will be in focus.

USD/CAD: Daily chart

Trend: Pullback expected

 

  • NZD/USD fails to extend bounce off one-year low.
  • Market sentiment sours amid mixed concerns over South African covid variant, fears of Fed tapering.
  • Fed Chair Powell confirms inflation not ‘transitory’, pushed for faster taper in testimony.
  • Australia Q3 GDP, China Caixin Manufacturing PMI eyed for fresh impulse ahead of busy US calendar.

NZD/USD retreats towards the 0.6800 threshold, following a corrective pullback after refreshing the yearly bottom with 0.6772. That said, the Kiwi pair remains pressured around 0.6818 during the early hours of Wednesday morning in Asia.

With the varied opinion of the current vaccines’ ability to tame the South African strain for the coronavirus, dubbed as Omicron, markets remain jittery and rush to safe-haven assets like bonds and the US dollar. Adding to the bearish bias for the Kiwi pair were the hawkish comments from Federal Reserve (Fed) Chairman Jerome Powell, in his testimony on the CARES act before the Senate Banking Committee.

After a mildly positive start to Tuesday’s trading in Asia, risk appetite soured on comments from Moderna’s Chief Stéphane Bancel who said, per the Financial Times (FT), “that existing vaccines will be much less effective at tackling Omicron than earlier strains of Covid-19 and warned it would take months before pharmaceutical companies can manufacture new variant-specific jabs at scale.” It should be noted, however, that representatives of Pfizer and Oxford tried placating market fears citing no such evidence supporting the fact that the current jab will not be able to contain the virus strain.

It should be observed that nine-month low prints of the US CB Consumer Confidence and softer housing data helped bears to take a breather before Fed’s Powell pulled the US Dollar Index (DXY) back from the weekly low while saying, “It is time to retire the term ‘transitory’ for inflation.” Also weighing on the mood and the NZD/USD were his comments suggesting the risk of more persistent inflation and signals for discussing faster taper in the December meeting.

Elsewhere, China’s official NBS Manufacturing PMI jumped past the 50.00 level for the first time in three months while New Zealand Building Permits for October recently dropped below -1.9% prior to -2.0% in October.

Amid these plays, Wall Street benchmarks posted losses and the US 10-year Treasury yields refreshed a two-month low before closing around 1.45%. Further, the DXY printed a four-day downtrend from the monthly high ahead of consolidating losses around 95.90.

Looking forward, the risk aversion wave may keep the NZD/USD prices pressured and hence highlight the headlines concerning the Fed and Omicron, which in turn emphasize on the second day of Powell’s testimony and US ISM PMI’s. On an immediate basis, Australia’s Q3 GDP and China’s Caixin PMI will be important to follow.

Technical analysis

Despite refreshing the yearly low, NZD/USD prices failed to offer a daily closing below the 0.6800-6790 region comprising the 61.8% Fibonacci retracement (Fibo.) level of June 2020 to February 2021 upside and multiple levels marked during September and November 2020. Failure to conquer the key support joins oversold RSI conditions to portray a corrective pullback targeting September’s low around 0.6860. However, any further advances will aim for July’s low of 0.6881 and the previous support line from June 2020 near the 0.6900 round figure.

 

  • El GBP/JPY cayó modestamente por debajo de 150.00 el martes, pero desde entonces se ha recuperado hasta 150.50.
  • Los bajistas ahora apuntarán a una prueba de los mínimos de abril a octubre en la región de 148.50-149.50.
  • El par continúa sufriendo en medio de una mayor demanda de activos de refugio seguro, ya que los mercados se preocupan por las incertidumbres relacionadas con Omicron.

El GBP/JPY siguió bajando el martes, recuperándose desde donde se quedó el viernes pasado después de la sesión lateralizada del lunes. El par cayó por debajo de 151.00 durante la sesión asiática, ya que la mayor demanda de refugios seguros impulsó al yen después de que los comentarios del director ejecutivo de Moderna desencadenaron preocupaciones sobre la eficacia de la vacuna y desencadenaron flujos de aversión al riesgo. El par cayó momentáneamente por debajo del nivel clave de 150 en operaciones anteriores, pero desde entonces se ha recuperado hasta alrededor de 150.30.

Desde que cayó por debajo del soporte clave en la zona de 152.50 en forma de una serie de mínimos recientes y la DMA de 200 a finales de la semana pasada, cuando los temores de Ómicron llegaron al mercado por primera vez, el GBP/JPY no ha mirado hacia atrás. El par ahora ha retrocedido más del 5.0% desde los máximos de octubre por encima de 158.00 y los bajistas ahora miran una prueba inminente de los mínimos de abril-octubre en la zona de 148.50-149.50. Sin embargo, con el índice de fuerza relativa del par acercándose rápidamente al territorio de sobreventa en 32 (la sobreventa se clasifica por debajo de 30.00), esta puede ser un área difícil de romper en los próximos días.

Pero los mercados siguen estando muy motivados por los titulares relacionados con Ómicron. Todavía existe un alto grado de incertidumbre con respecto a qué tan bien la variante podrá evadir la inmunidad natural e inducida por la vacuna, así como con respecto a su transmisibilidad y síntomas. La respuesta a estas preguntas determinará si el surgimiento de Ómicron resulta ser solo una “tormenta en un vaso de agua” o si es una amenaza significativa para la economía global y los planes de ajuste del banco central. 

  • On Tuesday, the EUR/JPY finished the day in the green amid risk-off market sentiment.
  • Omicron COVID-19 concerns and Fed’s Chair Powell comments dampened the market sentiment, favoring the greenback and safe-haven currencies.
  • EUR/JPY: Has an upward bias, above 128.17.

On Tuesday, the EUR/JPY is modestly advancing as the New York session wane, up some %, trading at 128.29 at the time of writing. Comments from an influential pharmaceutical CEO related to vaccine effectiveness against new coronavirus strains, and hawkish remarks of Federal Reserve Chair Jerome Powell, dented the market sentiment, favoring the greenback, the Swiss franc, and the Japanese yen.

However, in the case of the EUR/JPY, the shared currency has the upper hand against the Japanese yen, though in the overnight session, omicron woes caused a sharp drop in the pair, favoring JPY bulls, falling from 128.59 down to 127.89 amid the vaccine comments.

Additionally, on Tuesday, at a hearing at the US Senate Committee on Banking and Housing, Jerome Powell changed its monetary policy stance from neutral-dovish towards a hawkish one. He said that the Fed’s target for inflation has been met and commented that inflation can not be longer considered “transitory.” When those remarks crossed the wires, US equity indices plummeted, and the EUR/USD collapsed 130 pips on a free fall. The EUR/JPY followed its footsteps, but moderately witnessing a 70-pip fall, but as the New York session closed, the pair recovered most of the losses, finishing in the green,

EUR/JPY Price Forecast: Technical outlook

The EUR/JPY 1-hour chart deícts the pair is range-bound between the 127.60-128.63 range, 100-pip wide. At press time, the pair tests the confluence of the 50-hour simple moving average (SMA) and Wednesday’s daily central pivot point at 128.17, acting as support. Also, November 30 high and low are higher, indicating that the EUR/JPY could be headed to the upside in the near term, but it would find some hurdles on the way up.

The first resistance would be November 30 high at 128.60. Breach of the latter would expose the 200-hour SMA at 128.86, followed by the R2 daily pivot point at 129.13.

On the other hand, a break below the daily central pivot point would exert downward pressure on the pair. The first support would be the S1 daily pivot at 127.74, followed by November 30 low at 127.64 and then the November 29 low at 127.48 

 

  • AUD/USD bears waiting to engage once again following a significant correction.
  • All eyes will turn to the Aussie GDP data today.

AUD/USD is starting out the day down 0.2% from overnight trade following a strong bid in the US dollar. However, the pair has corrected which gives rise to the prospects of an opportunity for bears to move in at a discount. At the time of writing, the pair is trading at 0.7128 between 0.7062 and 0.7170. 

The high beat currencies were tracking the performance of equities that sold off on the day. US bond yields lifted as Powell indicated the Federal Reserve might consider accelerating the taper of bond purchases as inflation persists.  Consequently, US equities had plunged with the S&P500 down 1.9%. The Treasury curve flattened with the yield on the US 10-year Treasury down 6bps to 1.438%. 

The sell-off in risk occurred on Tuesday following warning comments from the chief executive of vaccine developer Moderna who told the Financial Times that existing vaccines may not be as effective against the omicron variant.

“A remark in the Financial Times made by the CEO of a major pharmaceutical company is generating renewed selling pressure: he believes that the current vaccines will be less effective against the new variant of the virus, meaning that new vaccines will need to be developed. This, and then making such modified vaccines available, will take months in his view. This is raising concerns about far-reaching mobility restrictions to combat the “Omicron” variant,” Commerzbank analyst Carsten Fritsch explained.

Meanwhile, markets will now look to today’s key event for the Aussie in the Gross Domestic Product data. 

  • Australian GDP Preview: September quarter contraction only a ‘setback’?

AUD/USD technical analysis

AUD/USD bears will be looking to see if the price from here will start to deteriorate. If so, then there will be prospects of a downside continuation. The 61.8% Fibonacci retracement level is so far holding up as resistance. 

From a 15-min perspective, the 0.7110 area will be important for bears looking to engage in a possible downtrend. A break there will likely be the last major defence for the bear trend to continue:

  • AUD/NZD consolidates losses after refreshing one-week low, stays below previous key supports.
  • 100-DMA, two-week-old rising trend line restrict recovery moves ahead of descending trend line from March.
  • 23.6% Fibonacci retracement lures bears, for now, September’s bottom is a crucial support.

AUD/NZD licks its wounds around 1.0450-45 as Asia-Pacific traders brace for Australia’s Q3 GDP during early Wednesday morning.

That said, the cross-currency pair closed below the 100-DMA for the first time in a week while also breaking an ascending support line from November 18.

Given the steady RSI, coupled with a clear downside break of the previous key supports, the latest decline is likely to extend should the Australia GDP offer no major positive surprise, expected -2.7% versus prior +0.7% QoQ.

Read: Australian GDP Preview: September quarter contraction only a ‘setback’?

With this in mind, AUD/NZD traders aim for the 23.6% Fibonacci retracement (Fibo.) level of the March-November fall, around 1.0405, before attacking the 1.0400 threshold.

In a case where the quote remains bearish past-1.0400, 1.0330 and September’s bottom of 1.0278 will be crucial levels to watch before expecting a fresh low under 1.0240.

Meanwhile, the corrective pullback will aim for the support-turned-resistance levels of 1.0450 and 1.0480, comprising 100-DMA and a fortnight-long trend line.

Should AUD/NZD prices manage to stay firmer above 1.0480, the 38.2% Fibo. level of 1.0510 and a descending resistance line from March, at 1.0526 at the latest, will be critical for the bulls.

To sum up, AUD/NZD has already opened doors for the sellers ahead of the likely downbeat Aussie data.

AUD/NZD: Daily chart

Trend: Further weakness expected