Sean Callow, Research Analyst at Westpac, explains that Australia’s return to headline 3% GDP growth helped the Australian dollar last week but it has since struggled a little.
Key Quotes
“Commodity prices are supportive but US$ sentiment has been choppy, ahead of this week’s key Fed and ECB meetings.”
“The Australian dollar reached 6 week highs against the US dollar last week, just short of 77 cents, but then pulled back to 0.76, down about half a cent overall. Most of its strength was as we suggested last week, when we noted that the signs were promising for Australia to report strong growth in Q1.”
“Australia’s economy grew 1% in Q1, taking annual growth to 3.1%, the fastest pace since Q2 2016. A sharp improvement in net exports was the key in the GDP acceleration from 0.4% in Q4 to 1%. Simply hitting the 3% headline growth rate that the RBA and Treasury have been projecting for 2018 and 2019 is a clear positive for AUD that should persist for some time.”
“There are reasons to be wary of the simple 3% growth handle. But overall, the GDP report was a positive for AUD and the Australian data this week ahead should reinforce the cautiously positive mood, including May employment, where Westpac forecasts a 17,000 increase in jobs and a slight fall in the unemployment rate to 5.5%.”
“Commodity prices are also more supportive for the currency, with a basket of Australia’s key commodity export prices at a 3 month high.”
“There is a lot to watch outside Australia in the week ahead. The focus of global markets will be monetary policy meetings at both the US Federal Reserve and the European Central Bank (there is less interest in the Bank of Japan).”
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