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Downward Pressure on AUD May Persist After Disappointing GDP Data

Downward Pressure on AUD May Persist After Disappointing GDP Data

2019-03-06 10:00:00
Martin Essex, MSTA, Analyst and Editor
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AUD price, news and analysis:

  • The recent weakness of AUDUSD looks set to endure as the technical position continues to deteriorate.
  • Meanwhile, poor Australian GDP data have increased the chances of a cut in interest rates despite central bank optimism.

Australian Dollar weakness to linger

The AUDUSD price will likely weaken further after poor Australian economic growth data increase the likelihood of a reduction in interest rates. GDP expanded in the fourth quarter of last year by just 0.2% quarter/quarter, below both the predicted 0.5% and the third quarter’s 0.3%. On a year/year basis it rose by 2.3%, below both the forecast 2.6% and the prior 2.7%.

The data, released Wednesday, suggest that the Reserve Bank of Australia could be too optimistic in its forecast of 3.0% economic growth this year and that interest rates may need to be cut in coming months to stimulate activity, perhaps by October, even though the RBA is reluctant to do so.

That prospect has extended the decline in the AUDUSD price, which has been falling for more than a week.

AUDUSD Price Chart, Hourly Timeframe (February 26 – March 6, 2019)

Latest AUDUSD price chart.

Chart by IG (You can click on it for a larger image)

The AUDUSD price is already at its lowest level since January 4 and is suffering from the economic slowdown in China. AUD is seen widely as a proxy for China, which is a major export market for Australian goods and services. It is also suffering from a firmer US Dollar, which was boosted Tuesday by news that the US Institute for Supply Management (ISM) index for the non-manufacturing sectors of the US economy climbed to 59.7 in February – above both the predicted 57.3 and January’s 56.7.

However, AUD bears should be aware that it could rally if China decides to act to stimulate its economy or the US Dollar succumbs to political concerns about the US-China trade deal and/or worries about North Korea’s nuclear weapons program.

You can find more AUD news and analysis here

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

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

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