Better-Than-Expected GDP Figures Boost Australian Dollar
THE TAKEAWAY: Australian 3Q GDP growth stronger than expected > Raises possibility of RBA pause on rate cuts > Aussie rises
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The Australian Dollar firmed against its US counterpart after better-than-expected GDP data raised expectations that the RBA would pause on cutting rates further. Immediately after the data release, the Aussie rose over 30 pips from 1.0242 to 1.0273.
According to the Australian Bureau of Statistics, the nation’s economy grew 2.5 percent YoY in the quarter ended September 30, accelerating from an upward-revised 1.9 percent yearly pace in the 2nd quarter. Consensus estimates were for a 1.9 percent yearly increase. On a quarterly basis, GDP rose 1 percent, beating expectations of 0.8 percent growth. Household consumption rose 1.2 percent in the quarter.
The GDP data release comes immediately after the RBA lowered the benchmark cash-rate target by 25 basis points to 4.25 percent. In the statement accompanying the decision, the RBA cited the uncertain global economic scenario, the ongoing sovereign debt issues in Europe, and signs of a slowdown in China, the country’s top trading partner. While the better-than-expected growth figures may point to overall stability in the Australian economy, headwinds remain. Last week’s data prints revealed a lower-than-expected increase in retail sales in October, while building approvals plunged 10.7 percent in the same month, signaling continued lack of confidence in the construction sector. The external scenario, especially in China, also presents risks to Australia’s resource-driven economy. China’s manufacturing PMI in November showed contraction for the first time since 2009, while the country’s non-manufacturing PMI also dived into contraction territory.
Faced with this complex economic scenario, the RBA could pause on cutting rates at the next meeting to assess the direction of further economic data. In the meantime, external factors ranging from developments in China to Eurozone policymakers’ steps toward resolving the debt crisis will shape movements in the Aussie.
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