This week our currency strategists focused on Australia’s GDP Report (Q4 2024) and its potential impact on the Australian dollar for potential high-quality setups.
Out of the four scenario/price outlook discussions this week, one discussion arguably saw both fundie & technical arguments triggered to become potential candidates for a trade & risk management overlay.
Watchlists are price outlook & strategy discussions supported by both fundamental & technical analysis, a crucial step towards creating a high quality discretionary trade idea before working on a risk & trade management plan.
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AUD/CAD: Tuesday – March 4, 2025
AUD/CAD 1-Hour Forex Chart by TradingView
Last Tuesday, our strategists had their sights set on Australia’s Q4 2024 GDP Report and its potential impact on the Australian dollar. Based on our Event Guide, expectations were for the economy to grow by 0.5% q/q (versus 0.3% in Q3), with annual growth projected at 1.3% (versus 0.8% previous). With those expectations in mind, here’s what we were thinking:
The “Aussie Advance” Scenario:
If the GDP data came in stronger than expected, we anticipated this could reinforce the RBA’s gradual approach to rate cuts. We focused on AUD/CHF for potential long strategies if risk sentiment was positive, especially given the SNB’s recent dovish stance and rate cut plans.
In a risk-off environment, AUD/CAD long made sense given Canada’s exposure to new U.S. tariffs and weaker oil prices, with the pair hovering just hovering above the 0.8950 range support prior to the release.
The “Aussie Avalanche” Scenario:
If Australia’s growth showed significant weakness, we thought this could fuel RBA rate cut expectations. We considered AUD/NZD for potential short strategies if risk sentiment stayed positive, particularly given New Zealand’s better footing in terms of trade compared to Australia’s vulnerability to U.S.-China trade tensions.
In a risk-off environment, AUD/JPY short looked promising given the relatively hawkish BOJ stance and the pair’s position testing the bottom of a falling channel on the 1-hour chart.
What Actually Happened:
The Q4 2024 GDP report exceeded expectations, showing the Australian economy expanded by 0.6% in the fourth quarter, beating the 0.5% forecast and marking a significant improvement from Q3’s 0.3% growth. This represented the strongest quarterly expansion in over a year.
Key points from the GDP report:
- Annual GDP rate reached 1.3%, matching expectations but exceeding the RBA’s 1.1% forecast
- GDP per capita rose 0.1% after seven consecutive quarters of decline
- Household consumption increased 0.4% following flat performance in Q3
- Public investment rose 1.8%, showing moderate growth
- Private investment increased 0.3%, led by business investment
- Agricultural output was particularly strong (+7.3%)
- The household saving ratio rose to 3.8% from 3.6% in Q3
- Terms of trade rose 1.7% after three consecutive declines
The Australian Bureau of Statistics noted that growth was broadly based across the economy, with both public and private expenditure contributing positively.
Market Reaction:
The initial market reaction to the stronger-than-expected GDP print was muted, with the Australian dollar barely reacting to the release as traders remained focused on escalating global trade tensions.
Looking at our AUD/CAD chart, we see that the pair was already in a corrective phase from its recent lows near the minor psychological area of 0.8950. The positive GDP surprise likely provided some support for the Aussie, with bullish technical traders likely stepping in as the pair stayed above the 100 SMA.
AUD/CAD pulled closer to the Pivot Point (.9003) during the Asian session before accelerating higher as European traders entered the market. The upward momentum was further supported by Canada’s exposure to Trump’s 25% tariffs on Canadian imports, which had triggered a sharp CAD selloff earlier in the week.
The pair extended gains to move past the R1 level (.9055) resistance zone and test the 0.9100 major psychological level before the release of the strong Canada Ivey PMI (55.3 vs. 49.2 forecast), which correlates with the high of the week and swift reversal, bringing the pair back to the moving averages.
Bullish pressure soon returned around the dynamic inflection points at the moving averages, with the oil-related Loonie likely weighed down by sliding crude oil prices, followed by a disappointing Canadian employment report (full-time employment falling by 19.7k vs. 10.0k forecast).
By Friday’s close, AUD/CAD had settled just above the R1 level, maintaining most of the gains triggered by the better-than-expected Australian GDP and weak Canadian fundamentals.
The Verdict:
So, how’d we do?
Our fundamental analysis anticipated AUD strength on a stronger GDP report in a risk-off environment, which played out largely as expected. The 0.6% GDP growth exceeded the 0.5% forecast and reinforced the RBA’s cautious stance on future rate cuts, while global trade tensions kept the broader market sentiment negative.
If traders entered long positions in AUD/CAD after the GDP release, particularly near the Pivot Point support around 0.9000, they could have captured a max move of around 100 pips to the 0.9100 major psychological level. The trade was further supported by broad CAD weakness due to U.S. tariffs and Friday’s disappointing Canadian employment figures.
Overall, we think this discussion was “highly likely” supportive of a net positive outcome as our fundamental analysis lined up an adjusted technical framework would have lined up well. Our analysis correctly identified the favorable fundamental backdrop (strong AU GDP vs. weakening CA data), and while our technical analysis area of interest was a far-off post event, the retest and hold of the pivot area post event would have been a strong signal to lean bullish.
Given the deep pullback after testing 0.9100, trade management would have determined the degree of a successful outcome, but overall, it would have likely been some gain given that price never dipped below the pre-event levels.