Australian GDP Preview: Low growth priced into AUD/USD, and watch for Lowe's comments

• Australia is expected a second consecutive quarter of unimpressive growth.
• After a few misses on the components, AUD/USD already prices in a disappointment.
• RBA Governor's Lowe speech may steal the show.

Australia publishes its Gross Domestic Product report for Q4 2018 on Wednesday, March 6th, at 00:30 GMT. The Land Down Under is late in the following quarter and without any advance publications. While a sole release tends to have more impact than several ones, most of the components are already out, leaving less room for surprises.

Background 

However, this was not the case in Q3, when Australia's GDP growth came out at 0.3%, half the early expectations and a third of the level seen in Q2. The sharp slowdown weighed on the Aussie.

This time, projections are quite low, to begin with. The global mood has changed and everybody is talking about a global slowdown. China, Australia's No. 1 trading partner took steps to stimulate the economy after forecasting lower growth than in 2018, which was the slowest in 28 years. 

Moreover, components leading towards this GDP report have been quite downbeat. Company Operating Profits rose by only 0.8%, and Construction Work Done plunged by 3.1% in Q4, after a similar slide in Q3. 

The Reserve Bank of Australia eventually responded to the news by shifting its slightly hawkish bias to a more balanced one. RBA had said that the next move would be up rather than down beforehand. 

Expectations and what's priced into AUD/USD

The disappointing data sets expectations at 0.3%, a repeat of Q3 and a low number in absolute numbers for a country that has not seen an official recession since the early 1990s. 

Year over year, a deceleration from 2.8% to 2.5% is on the cards. While still a healthy rate for a developed economy, nobody likes a slowdown.

Nevertheless, markets are now more prepared for poor data all over the world and in Australia in particular. So, AUD/USD may weather a figure such as 0.2% or even 0.1% growth levels after the recent data.

An "as expected" 0.3% QoQ may turn out to be positive for Aussie/USD in the current atmosphere and could result in a "sell the rumor, buy the fact" response. Such an upwards move may be limited to the Asian session and the Aussie may return to falls once Australia is seen as not really bucking the global trend. 

Any beat of expectations may trigger a more significant recovery rally. It would take stagnation or a contraction in the economy to sound the alarm bells and perhaps send AUD/USD below the closely-watched 0.70 level. 

AUD/USD is trapped in a wedge on the daily chart:

 

Here is a quote on the big levels to watch, from the latest AUD/USD weekly forecast:

Aussie/USD battles the 0.7100 level. Some support awaits at 0.7080 which was a low point in September and recently supported the pair. It is followed closely by 0.7070 that forms part of the uptrend support line and was a swing low in February. 0.7050 is next before the 0.7080 level seen early in the year.

Some resistance awaits at 0.7120 that was a pivotal line in recent days. 0.7165 was a swing low in November and also supported the pair afterward. The 0.7200-0.7205 region capped the pair in February and serves as fierce resistance. 0.7240 was a high point in early January and 0.7300 capped A$/USD in late January.

Lowe before low growth

RBA Governor Phillip speaks on Tuesday at 22:10 and may steal the show from the GDP data coming out 140 minutes afterward. After hardly altering the rate decision, Lowe may be a bit more outspoken in his Sydney speech about the housing market and the impact on the broader economy, a sensitive topic.

If Lowe is downbeat on growth, a poor figure may already be priced into a higher extent than described earlier. If he sounds a bit more sanguine, expectations may rise, pushing the Aussie higher but perhaps setting the stage for a disappointment when the actual figure comes out.

In the unlikely case that Lowe makes a case for a rate cut, taking one step further to the dovish side, the Aussie will fall and may totally ignore the hard data from the past. It will be already looking to the future.