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Australian Dollar Gains as GDP Growth Reduces RBA Rate Cut Bets

Australian Dollar Gains as GDP Growth Reduces RBA Rate Cut Bets

Daniel Dubrovsky, Strategist

Talking Points

  • Australian Dollar climbs against its major counterparts
  • 1Q Australian GDP beat expectations on the whole
  • Bond yield reaction likely due to ebbing RBA rate cut bets

Having trouble trading the Australian Dollar? This may be why.

The Australian Dollar climbed against its major peers after Australia’s first quarter GDP crossed the wires and beat expectations on the whole. Heading into the announcement, there were upward revisions to growth estimates after yesterday’s net exports as a percentage of GDP rose to 1.1 percent.

The country’s economy grew 3.1 percent (YoY) in the first quarter (1Q) of 2016 versus 2.8 percent expected and 2.9 percent back in the fourth quarter (4Q) of 2015. This marks the fastest pace of yearly expansion since the third quarter of 2012. Quarter-over-quarter, Australia’s gross domestic product increased 1.1 percent in the 1Q versus 0.8 percent expected and 0.7 percent in the 4Q. This marks the fastest pace of quarterly expansion since the 1Q of 2012.

As the data crossed the wires, Australian 2-year government bond yields rallied alongside the Aussie. With overnight index swaps pricing in at least one RBA rate cut over the next 12 months, yield gains suggest that the markets are less certain that the central bank could act sooner rather than later. The Reserve Bank of Australia did note in its most recent monetary policy announcement that indicators point to continued GDP growth in 2016.

Meanwhile, the DailyFX Speculative Sentiment Index (SSI) is showing a reading of 1.66 following the announcement, meaning that for every trader short the AUD/USD, there are 1.66 on the long side. The SSI is a contrarian indicator, implying further AUD/USD weakness ahead.

Want to learn more about the DailyFX SSI indicator? Click here to watch a tutorial.

Australian Dollar Gains as GDP Growth Reduces RBA Rate Cut BetsAustralian Dollar Gains as GDP Growth Reduces RBA Rate Cut Bets

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