How to Use Currencies to Trade the GDP Report

Australian Currency

The third-quarter GDP report will be released on Thursday. Here's how to position yourself using currencies.

Economic reports have been all over the place lately, but expectations for third quarter GDP are reasonably strong, at 2.5%. Andrew Busch, global currency and public policy strategist for BMO Capital, has a plan for trading that sentiment.

Busch sees three scenarios for GDP, due to be released Thursday. If it comes in over 2.5%, he would sell the dollar and buy the Australian dollar, and if it hits 2.5%, he would stand pat. On the other hand - and this is his most likely scenario - if GDP comes in lower than 2.5%, he wants to sell the Australian dollar and buy the greenback.

"I like number three the best because I think it provides the best opportunity," Busch told CNBC's Simon Hobbs.

Currency markets have been risk-on since early October, Busch says, and "I think we're in a territory now where we're going to pull back from that."

Ahead of the GDP release, Busch recommends selling the Australian dollar right around 1.0475 with a stop at 1.0555 and a target of 1.0275.

"We're looking for a fairly big move," he says, but "this is a counter-trend trade, so you want to be out of this quickly if it fails."

You can watch the whole discussion on the videotape.

Tune In: CNBC's "Money in Motion Currency Trading" airs on Fridays at 5:30pm and repeats on Saturdays at 7pm.

Learn more: The essential vocabulary for currency trading is on Key Currency Terms. Top currency strategies are broken down for you in Currency Class.

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