MARKETS SPECTATOR: GDP preview

With the local currency trading just above the $US1.02 mark and at its lowest point since late July, it looks as if the market is positioned on the short side (have sold the currency betting on further falls) heading into this morning's Q2 GDP figure. In fact, it has been under pressure for the last couple of weeks as the overall demand for riskier assets has waned on the back of continuing concerns over the state of the global macro economy, weakening data out of China and the subsequent pressure on the local mining sector.

Following the much stronger-than-expected Q1 GDP print of 1.3 per cent, versus expectations of 0.5 per cent per cent, the market is forecasting fairly robust growth of 0.8 per cent despite all the negative headlines of the last few months. So in terms of a market reaction, today's release could be quite interesting.

Based on the recent weakness, perhaps the market is betting a somewhat softer number. If this proves correct, the question will be how big a miss it is versus forecasts. A much worse-than-expected figure is likely to attract further selling pressure but a smaller miss may not see much of a response to the downside, given that a lot of traders are already short. In fact, we may even see some short covering as their predictions don't play out.

On the flipside and given the selling the Aussie has seen recently, any release in line with expectations or better could easily see a sharp short covering rally as those participants already short look to quickly buy back their positions amidst a bag of new buy orders.