The Australian dollar is drifting on Tuesday. In the North American session, AUD/USD is trading at 0.6461, down 0.20% on the day at the time of writing.
Australia’s GDP expected to improve in Q3
Australia’s economy is expected to improve in the third quarter, with a market estimate of 0.4% q/q. This follows a disappointing gain of 0.2% in Q2, the weakest growth in five quarters, as household spending declined. On a yearly basis, GDP is expected to tick up to 1.1% compared to 1% in the second quarter.
The Australian economy continues to groan under the weight of high interest rates, which the Reserve Bank of Australia implemented in order to tame high inflation. Now that inflation has come down, there is pressure on the RBA to respond with lower rates. The RBA has become an outlier as most major central bank are in the middle of an easing cycle.
RBA Governor Bullock has remained hawkish, reiterating that underlying inflation is too high for the RBA’s liking and that a rate hike is not off the table. Headline inflation has fallen to 2.1%, well within the RBA’s target bank of 2%-3%, but the RBA remains concerned about underlying inflation, which accelerated in October to 3.5%, up from 3.2% a month earlier.
The market isn’t buying the warning of higher rates and expects the next rate move to be a cut sometime in mid-2025. That means that consumers will have to grapple with high rates for months, barring an unexpected fall in underlying inflation.
In the US, Federal Reserve Governor Christopher Waller said on Monday that he is leaning toward a cut in December but could change his mind if inflation surprised on the upside. The US releases November CPI one week prior to the rate announcement and the release will be a key factor as to whether the Fed cuts or maintains interest rates.
AUD/USD Technical
- AUD/USD tested resistance at 0.6478 earlier. Next, there is resistance at 0.6514
- 0.6441 and 0.6405 are the next support levels
