The Australian Dollar extended losses after third-quarter Gross Domestic Product figures proved disappointing, leading the high-yielder to test below 0.90 against its US counterpart. The economy expanded 0.2% in the three months through September amid expectations for a 0.4% result and lower than the 0.6% gain recorded in the second quarter. The annual growth rate declined to 0.5%, whereas preliminary forecasts called for a slight increase to 0.7% from 0.6% in the previous period.
The details of the report also proved discouraging. Private demand proved weaker, with consumption gaining 0.7% and investment rising 0.4% versus 0.8% and 0.5% in the previous quarter, respectively. The external sector also disappointed as exports fell -2.26% while imports gained 5.78%. Meanwhile, government spending pushed higher, rising 6.2% and nearly tripling the second-quarter gain of 2.6%.
On balance, the outcome raises serious concerns about Australia’s ability to continue to outperform other top economies after the flow of stimulus cash dries up, leading traders to sharply reduce bets on further rate hikes from the Reserve Bank of Australia. Indeed, a Credit Suisse gauge of priced-in yield expectations now shows that the markets now see the probability of another 25 basis point rate increase in February at just 37% versus 80% at the beginning of the week.
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