Australia: GDP shock drop – AmpGFX

The Australian GDP data on Wednesday were shockingly weak, falling 0.5%q/q and slowing from 3.1%y/y in Q2 to 1.8%y/y in Q3, compared to a perceived trend rate of growth of around 3% as noted by the Greg Gibbs, Director at Amplifying Global FX Capital.

Key Quotes

“On the face of it, this might be expected to have seen the AUD fall more than it has.  In fact, less than 24 hours after the outcome the AUD was higher.”

“The muted currency response can be explained by a number of factors that suggest this outcome may underscore the state of the economy, and the RBA, looking forward, will not be rushing to cut rates.”

“Furthermore, iron ore and steel prices in China returned to new highs, while the USD strength had lost momentum in recent weeks and emerging market assets were recovering.”

“However, Australian GDP data is indicative of the weaker state of the economy this year and consistent with the slower pace of employment growth. The RBA is likely to be further away from hiking rates at the same time as rate hikes are being moved up the schedule in the USA.”

“Even though there has been a modest uplift in Chinese economic activity, including steel production this year, helping support steel prices, there still appears to be excessive gains in steel and iron ore prices this year that might unwind at any time.”

“Iron ore inventories at Chinese ports are approaching record highs.  Chinese economic stability continues to be threatened by persistent capital outflow, now more clearly pushing up Chinese interest rates and tightening monetary conditions.”