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Australian Dollar Weakens as Disappointing GDP Data Fuels RBA Rate Cut Speculation

Australian Dollar Drops on Weak GDP Data and RBA Rate Cut Bets

Australian Dollar Weakens as Disappointing GDP Data Fuels RBA Rate Cut Speculation

The Australian Dollar (AUD) remains under pressure on Thursday, weighed down by slower-than-expected domestic GDP growth and rising bets on an interest rate cut by the Reserve Bank of Australia (RBA). Concerns over potential tariff policies from US President-elect Donald Trump add to the AUD’s struggles.

Economic Data and Market Dynamics:

  • Australia’s GDP Data: Australia’s GDP grew by 0.3% quarter-on-quarter in Q3, below market expectations of 0.4%, despite improving slightly from 0.2% in Q2.
  • Trade Surplus: The trade surplus rose to AUD 5,953M in October, surpassing forecasts of AUD 4,500M and September’s revised AUD 4,532M.
  • Judo Bank Services PMI: The final Services PMI for November increased to 50.5, moving into expansion territory and beating estimates of 49.6.

These mixed data points highlight a fragile recovery, prompting speculation of dovish actions by the RBA.

US Data and Fed Policy:
In the US, weaker-than-expected Services PMI and Composite PMI readings for November indicate some softening in economic activity. The ISM Services PMI fell to 52.1, below the 55.5 forecast, while the Composite PMI slipped to 54.9.

Federal Reserve Chair Jerome Powell reiterated that the US economy has shown resilience, allowing for a potentially slower pace of rate cuts. San Francisco Fed President Mary Daly echoed this sentiment, emphasizing a measured approach to achieving inflation and growth targets. The CME FedWatch Tool reflects a 77.5% probability of a 25-basis-point rate cut in December, with a 22.5% chance of no change.

Outlook:
Market participants will closely watch the US Initial Jobless Claims and Goods Trade Balance on Thursday for near-term drivers. However, the spotlight remains on Friday’s US Nonfarm Payrolls (NFP) report, which could influence broader risk sentiment and shape USD movement.

For the AUD, persistent dovish expectations around the RBA and external risks like trade policies weigh heavily, maintaining a bearish bias in the near term.