Australian GDP preview: What comes next for the AUD/USD?

Article prepared by Tony Sycamore

On the morning of Wednesday 7 December, just a day after the much anticipated and last RBA board meeting for 2022, Australian Q3 GDP is set to drop.

Buoyed by unprecedented fiscal and monetary stimulus during lockdowns and the re-opening at the start of the year, Q3 GDP is expected to rise by 0.7%, locking in a fourth consecutive quarter of economic expansion for the Australian economy.

Notably, it will mark a step down from the June quarter’s 0.9% print, reflecting the impact of the RBA’s aggressive rate hiking cycle that commenced in May, aimed at restraining inflation and cooling the labour market.

Within the details, consumer spending is expected to reveal the pressure of higher rates and fall from 2.2% in Q2 to around 1%. The household saving ratio is expected to fall again as consumers dig into their still elevated covid savings to counter cost of living and mortgage pressures.

After a positive 1.1% contribution in Q2 net exports should detract from growth by -0.5%. Business and dwelling investment is likely to remain firm.

The expected slowdown in GDP is in line with the RBA’s updated forecasts in the recently released Statement of Monetary Policy. It is part of the plan to contain inflation while keeping the economy on an even keel. Whether this can be achieved remains to be seen.

“GDP growth is expected to be 3 per cent over 2022, before slowing to 1½ per cent over 2023 and 2024. The forecast slowdown reflects the combined effects of higher interest rates and lower real wages and wealth on private domestic demand, as well as the slowing global economy.”

AUD/USD

Turning to the currency, the AUD/USD is trading lower this morning at .6693 (-1.47%) after yesterday afternoon trading to a 12-week high at .6851. The cause of the sell-off was another round of robust U.S. economic data that has raised doubts that the Fed is in a position to slow the pace of its rate-hiking cycle, sending bond yields and the U.S. dollar higher.

As all eyes turn to the RBA board meeting this afternoon, a sustained break above resistance at .6851 and the 200-day moving average at .6921 is needed to negate the view that the rally from the .6170 low is countertrend and medium-term downside risks.

AUD/USD daily chart