Date: 07 Dec 2017

Traders who see the potential for further weakness in the value of the Australian dollar (AUDUSD) will have noted the price action that accompanied the release of underwhelming third-quarter Australian GDP data on Wednesday.  But equally, traders will be aware that the “shelf-life” of economic data can be short-lived. The foreign exchange market is like one of those Great White Sharks that swim off Australian coasts, it is never still. Yet traders might want to make a mental note of that Q3 Aussie GDP figure and more particularly how it broke down, because in the detail there may be implications for Reserve Bank of Australia (RBA) policy that long outlive Wednesday’s newswire headlines. Australian GDP rose 0.6 percent in Q3 quarter-on-quarter (versus a forecast 0.7 percent rise) with a disappointing household spending component one of the key reasons behind the shortfall.

Australian household spending rose just 0.1 percent, its weakest gain since Q4 2008 during the Global Financial Crisis. With the RBA previously having exhibited qualms about the financial health of Australia’s consumers, in part due to the high level of household debt, the unimpressive rise in the household spending component of the Q3 GDP data will likely only add to the central bank’s concerns. The RBA may prove to be in even less of a hurry to hike rates. Given that the Fed is almost certain to hike US rates next week, traders might feel that the current upside potential for AUDUSD is limited. The Australian cricket team have won the first two Test Matches versus England in the Ashes series but traders might feel Australia’s currency will remain on the back foot.

Written by Neal Kimberley, External Currency Analyst.