- AUD/USD powers to 1-month high
- Australian GDP dips to 0.2%
- RBA expected to deliver more rate hikes
The Australian dollar has extended its rally on Wednesday. AUD/USD is trading at 0.6689, up 0.28%. Today’s weak GDP report and soft Chinese trade data haven’t spoiled the party, as the Australian dollar is up 1.2% this week.
Australian GDP slips
Australia’s GDP slowed to 0.2% in the first quarter, down from 0.6% in Q4 2022 and missing the consensus of 0.3%. On an annual basis, GDP fell to 2.3%, following a 2.7% gain in Q4 2022 and shy of the consensus of 2.4%.
The economy is cooling down, and that really shouldn’t come as a surprise. The cost of living crisis, rising interest rates and weaker demand have taken a bite out of economic activity. China’s reopening has faltered, as May trade data showed a decline in exports and imports. This is bad news for Australian exporters, as their largest market is China.
The GDP report was released just hours after the RBA announced a 25-basis point rate hike. The RBA has surprised the markets with two straight rate hikes as it wages a relentless war against inflation, which isn’t coming down fast enough for the central bank. Governor Lowe reiterated after the decision that the RBA would do whatever it takes to bring inflation back down to its 2-3% target, from the current 7%.
Core inflation has been stickier than expected and that means that more rate hikes can be expected. The cash rate is currently at 4.10% and the RBA has looked at different scenarios in which the cash rate peaked at 4.8%. The RBA may not actually move to that level, as the danger of a recession would be high, but there’s little doubt that more rate hikes are on the way.
AUD/USD Technical
- AUD/USD is testing resistance at 0.6677. Above, there is resistance at 0.6749
- There is support at 0.6568 and 0.6496
