Australian dollar brushes off weak GDP figures

Financial and commodity markets analytics

The Australian dollar has drifted higher today following on from yesterday’s decision by the RBA to keep interest rates on hold and brushing off weak GDP numbers released earlier today.

At 10.36am (GMT) the Aussie dollar was trading at US78.28c up from US78.14c at yesterdays close.

Gross domestic product out of Australia grew 0.5% in the last quarter of the year, slightly below expectations of a 0.6% increase.


The yearly figure came in at 2.5%, continuing its downtrend which analysts attribute to the end of the mining boom.


Although the RBA left rates on hold yesterday, the latest GDP figures may be a catalyst for the central bank to move on rates in April as the economy struggles to come to terms with the end of the mining boom.

“The soft growth outcome reflects falling mining investment, weak public spending and a large subtraction to growth from inventories,” said Felicity Emmett, economist at ANZ Bank.


“We expect the Reserve Bank of Australia to cut the cash rate by a further 25 basis points in April.”


The downward trend will have a snowball effect as businesses cut back on investments and workers, which will only add to the unemployment rate which currently sits at a 13 year high of 6.4%.


"The good news is we've now completed 23 years of continuous growth," said Michael Blythe, chief economist at Commonwealth Bank. "The bad news is we're still running below trend, which will keep upward pressure on the unemployment rate and the RBA (Reserve Bank of Australia) on rate-cut watch."


The retail sales figure from Australia is due out on Thursday which may show a further lack of confidence in consumer spending adding to the case for a rate hike and putting a lid on the Australian dollar’s recent gains.


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