Quarterly growth figures for Australia came out at 0.8%, which was slightly weaker than forecast, but still strong.
“Traders got ahead of themselves yesterday betting the release of Australia’s Q2 GDP would be even stronger than the already upgraded forecasts. That was a bit of a naive error and the short term overhang of longs in the market then had to be unwound after the print was a little bit weaker than forecast,” said Greg McKenna, chief market strategist at FX and CFD provider AxiTrader in Sydney.
“But at 0.8% for the quarter Australian growth – and its composition – was still strong.”
Greg went on to explain how the important technical support levels on the Aussie dollar held in overnight trade based on a strong outlook and solid fundamentals.
The Australian growth story is strong
“The key here is Australian growth is strong. We don’t report annualised data in Australia, we report quarterly and year on year growth,” continued McKenna.
“Traders and investors are betting on future outcomes. So even if they don’t annualise they must extrapolate what this current level of growth means for the economy, for policy settings, and for the exchange rate – both outright and against other countries.”
McKenna then put into perspective the recent data prints, stating, “And on that front, the composition of growth, the fact that the September quarter 2016 contraction drops out with the next print and with the drag from mining investment ending the outlook is for growth to head back toward the RBA’s forecast of potential in the high 2% to low 3% region.”
“So traders and investors won’t be participating in the hand wringing of many who say the economy is actually weak. They’ll see the growth for what it is. Stronger than they thought possible a few month ago and on track for where the RBA says its headed.”
Greg continued, suggesting it is not surprising the Aussie dollar is sitting at 80 cents, “Throw in solid global growth, strong metals prices, and a weak US dollar, and is it any wonder the Aussie dollar is sitting up at 80 cents?”
Looking at the technicals, McKenna noted, “Looking at the daily chart first and we see it continues to show clear respect for the current uptrend line in broad terms and on a close basis. The current support level is 0.7945 today as the line moves upwards.”
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