Friday 18 January 2013

Trading the News: Chinese GDP

Who says all the action is in the London and the New York sessions?

Tomorrow at 2:00 am GMT we'll get hold of China's quarterly GDP report. Remember that China is the largest trading partner of Australia and New Zealand, which highly depend on their exports for economic growth. This suggests that significant changes in China's growth could impact the growth of these commodity-related economies too.

Just last week, AUD/USD shot up by as much as 50 pips at the release of the positive Chinese trade balance data which printed at 31.6 billion USD versus the 20.1 billion USD forecast. Even its CPI report caused a ruckus among the Aussie bulls and bears! China's higher-than-expected inflation rate at 2.5%, which topped the 2.3% consensus, hinted that the PBoC might not add more economic stimulus in the near future.

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This time around, market players are expecting China to have snapped out of its three-year-low growth rate of 7.4% and show an uptick of 7.8% for Q4 2012.

Apparently, analysts are convinced that the government's infrastructure projects as well as the lack of tightening in the monetary policy department have done their trick in boosting economic activity. They also believe that the latest upside surprises in China's manufacturing PMI and trade numbers are indications that we'll see a positive GDP reading this week.

What could the report mean for AUD/USD?

The Aussie gave up ground in the latter part of yesterday's trading when Australia's employment report came in worse than expected. AUD/USD fell to 1.0500 shortly after the negative figure was released. That's already enough bad news as it is and a negative Chinese GDP report would only make it harder for the Aussie to escape the bears! Don't be surprised to see the pair trade around 1.0400 if it comes in well below expectations.

On the other hand, this not-so-old man believes that the GDP report would have a bullish impact on the Aussie should it come as or better than expected. I mentioned above that China seems to have been on an economic slump, with its GDP hitting its 3-year low. And so, a growth rate of 7.8% should make a handful of investors happy as it would imply that the country's economic expansion would also benefit Australia.

Heck, if it comes in way over expectations somewhere above 8.0%, I wouldn't be surprised to see AUD/USD close above 1.0600 for the first time since March 2012!

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But of course, this is just my two cents. What do you think?

Source: http://www.fxstreet.com/fundamental/analysis-reports/piponomics/2013-01-17.html

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