Australian Dollar Declines After Q3 GDP Disappoints

In the past one month, the Australian dollar has been among the best-performing currencies in the G20. In this period, the currency rose from a low of 0.7200 to a high of 0.7395. This high was reached yesterday after a bullish statement from the Reserve Bank of Australia. In the monetary policy statement released yesterday, the bank’s governor said that:

Inflation remains low and stable. Over the past year, CPI inflation was 1.9 per cent and in underlying terms inflation was 1¾ per cent. Inflation is expected to pick up over the next couple of years, with the pick-up likely to be gradual. The central scenario is for inflation to be 2¼ per cent in 2019 and a bit higher in the following year… The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual.

The bank continued to warn about the falling house prices in Sydney and Melbourne. In these cities, house prices have fallen as oversupply meets low demand. As a result, a report by analysts at Saxo found that the bank was likely to start a fund to save the housing industry in the coming year. This is because the big four banks have already started hiking interest rates.

Investors bullish on the Aussie were excited about the report. This is because there was a sense that the bank’s next monetary policy decision will likely be to hike rates.

The mood was dampened today when Australia Bureau of Statistics released the Q3 GDP numbers. The numbers showed that in the quarter, the economy expanded by an annualized rate of 2.8%, which was lower than the consensus estimate of 3.3%. The previous data showed a growth of 3.4%. On a QoQ basis, the economy expanded by 0.3%, which was lower than the consensus estimate of 0.6%. This was the lowest quarterly growth since 2017.

As a result of the weaker data, the Australian dollar declined sharply against the USD. The pair declined to 0.7287. This was a 0.75% decline from yesterday’s high. On the one-month chart below, the pair’s price is below the 25 and 15-day EMA. The RSI has moved below the ‘oversold’ level of 30 and is at 22. There is a likelihood that the pair will resume the upward trend. This is because even with the Q3 decline, the country’s economy is still intact.

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