The economic growth data published today in Australia turned out to be quite contradictory but provided support to the Australian dollar.
To recall, following the December meeting, the Reserve Bank, in its accompanying statement, pointed out existing risks that concern members of the Australian regulator. Among them is the "gradual cooling of the Australian economy amid the action of high-interest rates." This phrase, along with concerns about the slowdown of the Chinese economy, exerted strong pressure on the Aussie, as traders interpreted it as a signal of a dovish nature.
However, the regulator did not rule out a future interest rate hike if needed. Obviously, such a need might arise if the Consumer Price Index in the fourth quarter reflects an acceleration of inflation in Australia. The corresponding release will be disclosed in January, so it is premature to speculate about the prospects of monetary policy tightening. Nevertheless, today's report could significantly tarnish the fundamental picture for the AUD/USD pair.
If the indicator had at least met the forecast level (not to mention the red zone), one could talk about a sustained downward trend. In the third quarter of last year, Australia's GDP in annual terms increased by 5.9%, in the fourth quarter by 2.6%, in the first quarter of 2023 by 2.4%, and the following quarter by 2.0% (according to revised data, the initial estimate was 2.1%).
Most experts' forecasts the Australian economy to grow by only 1.8% in the third quarter. Thus, a downward trend would have been observed for the fourth consecutive quarter (which resonates with the Reserve Bank's statement about the cooling of the national economy). However, in reality, Australia's GDP increased by 2.1% in the third quarter, year on year. Not the best result, but given the circumstances mentioned above, quite acceptable. In quarterly terms, the indicator ended up in the "red zone" (+0.2% instead of the predicted growth of 0.4%), but it is essential to note that the Australian economy has been in positive territory for the eighth consecutive quarter.
The structure of today's report indicates an increase in government spending (the indicator accelerated to 1.1% from the previous value of 0.6%). Moreover, the volume of imports increased (by 2.1%), but at the same time, the volume of Australian exports decreased (by 0.7%). Consumer spending in the third quarter remained almost unchanged, but the savings rate of the population sharply decreased, reaching a minimum since the fourth quarter of 2007 (the indicator reached 1.1%, and by the second quarter at 2.8%). Business capital investments in the third quarter increased by 1.1% (compared to 2.4% in the second quarter).
Traders of AUD/USD reacted quite optimistically to today's release. After a two-day impulse decline, the pair turned around by 180 degrees and approached the 66th figure once again. However, the enthusiasm of AUD/USD buyers faded. The market understood that today's release does not resolve anything in the "moment" and will be considered by RBA members in conjunction with inflation data (in the context of deciding on monetary policy tightening). Therefore, the pair could not return to the 66th figure area and is gradually slipping down at the moment.
In such conditions, long positions of a fundamental nature are categorically not recommended. The price spike of AUD/USD was due to a temporary strengthening of the Australian dollar. However, the Aussie is currently unable to sustain a stable upward movement. This is only possible with a simultaneous weakening of the greenback, while the U.S. dollar is currently in high demand amid increased risk aversion sentiment. The U.S. Dollar Index has been rising for the third consecutive day and is once again testing the 104th figure (for comparison, exactly a week ago, the index was at 102.38).
Traders are once again concerned about events in the Middle East and the news flow from China, which has not been pleasing market participants lately. International rating agency Moody's added fuel to the fire by changing its credit rating outlook for China from "stable" to "negative." According to economists surveyed by Bloomberg, this decision reflects "increased structural risks and a decline in economic growth in the medium term."
Meanwhile, dollar bulls are ignoring the strengthening of dovish sentiments regarding the further actions of the Federal Reserve. The market is practically convinced that the Fed has completed the current rate hike cycle and, at the same time, assesses the likelihood of a rate cut in spring 2024 as 50/50. However, the market's focus has now shifted to other (external) fundamental factors, so the U.S. dollar remains afloat.
Therefore, despite today's impulsive rise in AUD/USD, considering long positions for the pair is not advisable. Bears are likely to regain the initiative and attempt to push through the support level at 0.6550 (the middle line of the Bollinger Bands on the daily chart) with a high probability. The main target of the downward movement still lies at the 0.6500 mark (the Kijun-sen line on the same timeframe).