- AUD/USD fundamentals supporting a steep correction.
- Central bank play-off driving the Aussie higher but technically overbought.
Aussie GDP for the second quarter rose 0.5%, in line with the market’s 0.5%forecast and 1.4% for the year and not as bad as many were fearing heading into the release. The Q1 release was revised up from 0.4% to 0.5%/q. Driving today’s outcome was the external sector with government spending being the main contributor to domestic final demand, +2.7%/q.
Steady RBA
Household consumption remains subdued, +0.4%/q and was in line with our forecasts and dwelling investment continued to decline -6%/q.
While today’s print is below the RBA’s 0.75%/q forecast, the result is not a green light for the RBA to cut next month with GDP now having stabilised for two quarters, arguing for a ‘wait and see’ approach from the RBA.
Fed in a corner
“Looking more broadly at the path of trade and its contribution to US economic activity, the outlook is looking less positive. Within yesterday’s ISM manufacturing report the new export orders painted a particularly bleak picture. It fell to 43.3 versus the 50 break-even level, making it the worst reading since April 2009 and the depths of the global financial crisis,” analysts at ING Bank explained, arguing that the net trade contributions will weaken over the next couple of quarters, which will dampen US GDP growth and add to the pressure for additional policy easing from the Federal Reserve.
AUD/USD levels
In overbought conditions, the Aussie is due a correction travelling in an unsustainable steepness and a 50% mean reversion falls in at the 0.6740s, just above the 4-hour pivot.
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