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5 min read 

Australian GDP came in a bit weaker than expected despite recent sign of economic expansion.  The good news is that the figure shows remarkable growth in the YOY comparison and evidence the RBA’s decision to keep rates at historic low rates is the right thing to do. GDP grew 0.6% in third quarter, down from 0.9% in the 2nd, and slightly below the 0.7% expected by economists. GDP grew 2.8% versus the same period last year, evidence of strong growth in the last 12 months but a bit weaker than the 3.0% consensus estimate.

The news had the AUD moving lower versus other major currencies and in particular the US dollar. US data from employment services company ADP shows strong growth in the labor market. ADP employment came in at 190,000 and 5,000 better than 185,000 that was expected. This data is down from the previous month but still quite good, suggesting sustained improvement in employment. Job gains were broad across business size but heavily skewed in favor of services. Goods producing sectors created 40,000 jobs, primarily in manufacturing, with a small decline in construction. The services producing sectors created more than 155,000 jobs with only the info sector showing decline.

The AUD/USD began the day moving higher from yesterday’s close but those gains were muted by weaker than expected GDP. Later in the day better than expected GDP sent the pair moving lower to create a red bodied candle in confirmation of yesterday’s resistance. The pair is now set to test the bottom of its near term trading range with a possibility of moving lower. The next major catalyst will be Friday’s US non-farm payrolls which are expected to be strong at 205,000. There is possible support at 0.7565 and 0.7535, a break below would be bearish and in line with the underlying trend.

AUD/USD

The Australian dollar tried to gain strength versus the euro as well but those gains were likewise capped by resistance. The pair moved higher in early trading only to fall back on expected strength in the EU, giving up as much as it gained, before finally settling near break even to finish out the day.

The pair is creating a very doji like candle with long upper and lower shadows indicative of a market in turmoil; the question of the day is, which way will it go? This may indicate additional volatility into the near term up to and until the next big piece of data which could be tomorrow’s EU 3rd quarter GDP revision. Support is near 1.5500, resistance is near 1.6250, a break of either would be significant.

EUR/AUD

The Aussie dollar also fell versus the Canadian Loony despite indications of softness within the labor market. Canadian labor costs fell -0.2% versus an expected gain of 0.2% even as productivity declined more than expected. Productivity fell -0.6% versus -0.4% in evidence of slower production relative to the work force. The AUD/CAD fell to an 18 month low on the news and is likely headed lower in the near and long term.

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