- Australia is expected to report a slowdown in economic growth in Q3.
- The Australian Dollar continues riding on hopes for improved global trade.
Australia publishes its Gross Domestic Product for the third quarter of 2018 on Wednesday, December 5th, at 00:30 GMT.
The Australian economy enjoyed a robust growth rate of 0.9% QoQ and 3.4% YoY in Q2. The fast clip went hand in hand with upbeat levels in other countries. The land down under partially enjoyed the rush to complete trade transactions before a round of US tariffs on China came into force in early July.
China is Australia’s No. 1 trading partner and the trade war between the US, and China has not helped the prospects of the local economy. Other economies slowed down in the third quarter, and Australia is not expected to differ.
According to the economic calendar, the consensus stands at 0.6% QoQ, which is a substantial slowdown from 0.9% but still reflects OK growth, similar to a read of around 2.5% annualized in the US. Moreover, the year over year slowdown is projected to tick down from 3.4% to 3.3%, which is a healthy growth rate for a developed economy.
In its fresh rate decision for December, the Reserve Bank of Australia did not rock the boat or make any noteworthy changes to the wording about growth. Governor Phillip Lowe and his colleagues likely had the GDP figures before their eyes. Therefore, markets did not need to recalculate expectations.
GDP and AUD/USD – Hard to upend the uptrend
GDP is “hard data,” telling us what actually happened in the past. However, markets are also moving on “soft data”: expectations. In this case, projections and the mood have changed after the successful summit between US President Trump and his Chinese counterpart Xi. The suspension of further tariffs and the negotiations help risk assets such as the Australian Dollar.
The positive momentum is likely to prevail. So, if data meets expectations, there is a higher chance that the Aussie will continue higher. Needless to say, a better-than-expected outcome will likely give a bigger boost to AUD/USD.
A miss with 0.5% QoQ may also be shrugged off by markets at this juncture, assuming there are no considerable warning signs among the components of growth. The recent Capital Expenditure report disappointed with lower investment. If investment, which impacts the medium term that the RBA targets, badly disappoints, the A$ could suffer on a minor miss such as 0.5%. Otherwise, it could be a slight bump on the road.
A mediocre growth rate of 0.4% or lower would already cause a rethink. 0.4% QoQ is below 2% annualized and could push the yearly growth rate to around 3% or below. In such a scenario, AUD/USD could suffer a downfall.
All in all, the Aussie is enjoying an uptrend and a slowdown in growth is unlikely to change that.