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Australian Dollar Gains As Export Data Raise GDP Hope

Australian Dollar Gains As Export Data Raise GDP Hope

David Cottle, Analyst

Talking Points

  • AUD/USD rose despite a yawning current account deficit for Australia
  • Why? Well, exports’ share of growth increased
  • Chinese Caixin PMI data also perked up again

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The Australian Dollar got a boost Tuesday, despite news of a surprisingly high current account deficit as exports’ share of Gross Domestic Product increased, boding well for overall growth figures released tomorrow.

The second quarter’s balance of payments on current account was A$9.6 billion (US$7.7 billion), hugely more than the A$7.5 billion expected. However net exports as a percentage of GDP rose to 0.3%. This was much better than the expected flat outcome and the first quarter’s 0.7% deduction. Government spending also rose and looks set to make a positive GDP contribution.

There was more good news for the Aussie from China. The private Caixin Purchasing Managers Index survey found the service sector in resolutely expansionary mood. Its August reading came in at 52.7, well above July’s 51.5. Coupled with an already-released manufacturing PMI of 51.6 (a six-month high), this puts last month’s composite reading at a healthy 52.4. In the logic of PMIs any reading above 50 means the sector in question expanded.

The official PMI covers larger, often State-controlled enterprises was released last week. It too came in ahead of expectations and gave the Aussie a modest fillip.

However, the impact of this morning’s numbers may well have been blunted by the close proximity of the Reserve Bank of Australia’s September monetary policy call, which is coming up at 04:30GMT. The RBA is not expected to alter its record-low 1.50% Official Cash Rate so any comments it cares to make will be the markets’ focus. The central bank has been assiduous in communicating to markets that it does not want to see the Australian Dollar strengthen much further for fear of it then hampering both growth and inflation.

Investors will be keen to see whether it does so again as AUD/USD creeps up. The cross has been confined to a very narrow band for weeks now. There has been a sense that the market would quite like to buy- the cross is after all sitting close to two-year peaks. In the past few days it has inched back above the top of that band, which would seem to render it vulnerable to a reversal if the RBA inveighs against currency strength or if GDP still disappoints.

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter:@DavidCottleFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.