Australia's Gross Domestic Product growth expected to tick up slightly in Q3
- Australian Gross Domestic Product is foreseen to be up by 1.1% in Q3 compared with the same quarter a year earlier.
- The Reserve Bank of Australia will likely maintain the OCR on hold until later in 2025.
- The Australian Dollar advances against its United States rival, sellers waiting for better levels.
Australia will release Gross Domestic Product (GDP) figures for the third quarter (Q3) on Wednesday. The Australian Bureau of Statistics (ABS) is expected to report that the economy grew 0.4% compared with the previous quarter and 1.1% when compared with Q3 2023r. Annual growth in the second quarter printed at 1%, the slowest pace of growth since the coronavirus-led recession in 2020. The anticipated 1.1% barely surpasses such a mark, and will continue to indicate that the Australian economy has not yet turned the corner.
What to expect from the Q3 GDP report
The Australian economy is expected to have grown by 1.1% annually. GDP figures are among those that have a large impact on the local currency, in this case, the Australian Dollar (AUD).
Meanwhile, the Reserve Bank of Australia (RBA) keeps interest rates unchanged. The Official Cash Rate (OCR) was lifted for the last time in November 2023 and currently stands at 4.35%, and the RBA Board has maintained it there for over a year now amid stubbornly high inflation.
Higher interest rates have finally done the job. According to the latest data from the Australian Bureau of Statistics (ABS), the October monthly Consumer Price Index calculated year-over-year (YoY) printed at 2.1% for a second consecutive month. It is worth remembering that the RBA’s goal is to keep inflation between 2% and 3% YoY.
Even further, the quarterly CPI rose 0.2% in the three months to September and by 2.8% compared to the same quarter of 2023, its lowest increase in over three years and falling back into the RBA’s target band. The Q3 RBA Trimmed Mean CPI, the RBA’s favorite inflation gauge, was up 0.8% in the quarter and by 3.5% from a year earlier, easing from the previous 4% but still a tad higher than the RBA’s goal.
On the contrary, higher interest rates also mean slower economic progress amid higher financial costs. Lowering the OCR would spook the ghost of recession, yet probably revive inflationary pressures. However, boosting the economy is not within the RBA’s mandate.
Theoretically, growth-related figures should not affect policymakers’ decisions. Nevertheless, they do. RBA officials will not acknowledge concerns on the matter but rather maintain the focus on inflation.
The RBA will hold the last monetary policy meeting of the year next week but will likely maintain the OCR unchanged. The most optimistic outlook is that the first interest rate cut will come in February 2025, although there is increased speculation that the RBA won’t act until later in the year, probably around May.
How can the GDP report affect the Australian Dollar?
The GDP report will be released on Wednesday at 00:30 GMT, and market participants will consider the impact of the figures on upcoming RBA decisions. Upbeat growth-related figures could have a positive impact on the AUD while providing policymakers with the relief they need to keep rates at record levels.
However, lower-than-expected figures would mean the risk of a recession is becoming more real. The AUD may take the hit as policymakers could be forced to acknowledge a rate cut is necessary to prevent a steep economic setback.
Valeria Bednarik, Chief Analyst at FXStreet, notes: “The AUD/USD pair trades near the lower end of its November range amid broad US Dollar’s (USD) strength. The ongoing near-term recovery amid a better market mood is not enough to put the pair on a bullish track. Technical indicators in the daily chart remain within negative levels, offering modest upward slopes that suggest mounting USD selling rather than AUD buying. Even further, a firmly bearish 20 Simple Moving Average (SMA) provides dynamic resistance since mid-November, currently standing at 0.6514.”
Bednarik adds: “Better-than-anticipated GDP readings could push the pair beyond the mentioned resistance level and send AUD/USD towards 0.6570, a static resistance area. Nevertheless, the pair may resume its slide once the dust settles. Persistent risk appetite, however, may keep it afloat. The November monthly low at 0.6433 provides immediate support en route to the 0.6350 price zone, where AUD/USD bottomed in August.”
Economic Indicator
Gross Domestic Product (YoY)
The Gross Domestic Product (GDP), released by the Australian Bureau of Statistics on a quarterly basis, is a measure of the total value of all goods and services produced in Australia during a given period. The GDP is considered as the main measure of Australian economic activity. The YoY reading compares economic activity in the reference quarter compared with the same quarter a year earlier. Generally, a rise in this indicator is bullish for the Australian Dollar (AUD), while a low reading is seen as bearish.
Read more.Next release: Wed Dec 04, 2024 00:30
Frequency: Quarterly
Consensus: 1.1%
Previous: 1%
Source: Australian Bureau of Statistics
The Australian Bureau of Statistics (ABS) releases the Gross Domestic Product (GDP) on a quarterly basis. It is published about 65 days after the quarter ends. The indicator is closely watched, as it paints an important picture for the economy. A strong labor market, rising wages and rising private capital expenditure data are critical for the country’s improved economic performance, which in turn impacts the Reserve Bank of Australia’s (RBA) monetary policy decision and the Australian dollar. Actual figures beating estimates is considered AUD bullish, as it could prompt the RBA to tighten its monetary policy.
GDP FAQs
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency. When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.
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