Lower than anticipated Q2 GDP growth turns Aussie weak

On August 15, we suggested taking a long position in the AUD/MXN pair at 13.90. For the suggested trade, we had given a target price of 14.10. We also advised binary traders to purchase a one touch call option.

In a matter of ten days, the currency pair violated the target level. Now, the AUD/MXN pair is unable to move above the 14.20 level and is receding. Considering the recent economic developments, we believe that the AUX/MXN pair will remain bearish in the short-term.

On Wednesday, the Australian Bureau of Statistics reported that the economy grew 0.5% in the second-quarter ended June 2016.

The reported growth was below the analysts’ estimates of 0.6%. The Australian economy grew 1.1% in the first-quarter. The decline in the GDP growth was attributed to a slide in the exports and the rise in imports.

Yesterday, China’s General Administration of Customs stated that the trade surplus in August declined to $52.05 billion, from $59.68 billion a year earlier. The National Bureau of Statistics reported that China’s inflation rate in July was 1.8%, the lowest in the past six months. The news will have a negative effect on the Aussie as China is the largest trading partner of Australia.

MaxicoMexico’s

The Mexican economy, on the other hand, expanded 2.5% y-o-y in the second-quarter of 2016 and topped the preliminary estimates of 2.4% growth. The country’s trade deficit declined to $1.83 billion in July 2016, from $2.38 billion a year ago. It should be noted that the country’s dependence on the revenue from the export of crude has largely declined in the past decade. The revenue from crude now contributes to less than 20% of the government spending, from 34% in 2003.

Thus, fluctuations in the price of crude do not impact the economy as it did in the past. The country continues to benefit from the NAFTA agreement. Mexico exports goods worth nearly $1 billion per day, up ten times from what it was two decades before. Invariably, all the American automobile manufacturers have a presence in Mexico. The reduced dependence on oil revenue and diversification is expected to keep the economy on a growth track. Thus, considering these facts, we believe that the AUD/MXN pair will remain bearish in the short-term.

The historic price chart indicates that during the past one month, the currency pair was range bound between 14.00 and 14.40. Assuming that the upper and lower price bands will remain intact, we anticipate the AUD/MXN pair to come down and re-test the lower price band. The stochastic indicator shows that the currency pair is in an overbought state.

So, a Forex trader should go short at 14.40 levels with a stop loss order above 14.50. The short position can be closed when the AUD/MXN currency pair declines to the forecasted level.

A replica of short position can be created in the binary market by purchasing a one touch put option. The target price for the put option should be 14.15 or higher. The expiry date of the put option should be ideally in the first week of October.