Analysts at Westpac note that Australia’s Q2 GDP data provided some welcome good news as real GDP expanded by a solid 0.9% in Q2 and annual growth printed 3.4% versus a market expectation of 2.8%.
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“Looking closer, the 0.6 percentage point difference was due to a combination of upward revisions totalling around 0.4 percentage points from Q3 17 to Q1 18 and stronger than expected growth for Q2 of 0.2ppt. 3.4% was the strongest y/y growth since Q3 2012 and is comfortably above the generally accepted measure of potential growth for Australia of 2.75%. It is also faster than all other G10 nations, including the US (2.9%).”
“Admittedly there are qualms about the sustainability of growth, with the drought likely to become evident in H2 data and slow wage growth squeezing the consumer. The tightening in domestic financial conditions plus increased global trade tensions may also have an impact.”
“However, commodity prices remain strong.”
“Yet despite all the above, AUD/USD fell to a 2+ year low of 0.7145 on Wednesday, the same day the GDP report was released. So why was the AUD the second-weakest G10 currency over the week? The ongoing stress in emerging markets including near-neighbour Indonesia and rising trade tensions between the US and China with risks of more to come in coming days have clearly been factors.”
“Markets price only about a 1/3 chance of a cash rate rise by end-2019.”
“It looks like AUD/USD should continue to struggle to push much above 0.72 next week.”
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