AU Q2 GDP “recession” preview and what it means for AUDJPY
Tony Sycamore August 28, 2020 12:30 PM
This Wednesday, the 2nd of September, the release of Australia’s Q2 GDP is expected to confirm the coronavirus pandemic pushed the Australian economy into its first recession since 1990-91 and the deepest recession since the Great Depression of the 1930s.
The rule of thumb definition for a recession is two consecutive quarters of negative GDP growth.
In Q1 2020, the Australian economy shrank 0.3% as a result of the bushfires, the drought, and the onset of the coronavirus pandemic. On Wednesday the market is looking for Q2 GDP to fall by 6.0% following the lockdowns that occurred during April and May.
For the full year 2020, the RBA is expecting the Australian economy to shrink by 6%. Because of Australia’s early success in suppressing the pandemic and the faster than anticipated re-opening, this is less than the 8% the RBA forecast in May and a far better outcome than experienced in many other countries.
Data this week has supported the view that the recession will be shallower than initially expected. Construction activity data fell -0.7% in Q2, far less than the -5.8% expected, helped by the exemption the construction industry received from lockdown restrictions. Likewise, Private Capex data was better than anticipated, helped in part by the mining sector which also avoided COVID-19 disruptions while also enjoying resilient iron ore prices. Both of these components feed into next week’s GDP print.
Whilst there will no doubt be a barrage of negative media headlines after Wednesday's data, aside from the second wave of infection in Victoria, the coronavirus shock has been shorter and less devastating than expected. Forward-looking markets have long since moved on from the happenings of Q2 with a view towards the recovery.
With this in mind, it is no surprise, that AUDJPY buoyed also by a supportive risk environment has overnight broken and closed above a cluster of strong horizontal resistance between 76.55 and 76.85. Dips back towards the 76.85/55 support zone would be viewed as a buying opportunity in anticipation of AUDJPY extending its rally towards 78.50 and then 80.00 in the coming weeks.
Source Tradingview. The figures stated areas of the 28th of August 2020. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
From time to time, GAIN Capital Australia Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.
As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.