Australia's Gross Domestic Product growth expected to tick up slightly in Q3

• Australian Gross Domestic Product is foreseen to be up by 1.1% in Q3 compared with the same quarter a year earlier.
• The Reserve Bank of Australia will likely maintain the OCR on hold until later in 2025. 
• The Australian Dollar advances against its United States rival, sellers waiting for better levels.

Australia will release Gross Domestic Product (GDP) figures for the third quarter (Q3) on Wednesday. The Australian Bureau of Statistics (ABS) is expected to report that the economy grew 0.4% compared with the previous quarter and 1.1% when compared with Q3 2023r. Annual growth in the second quarter printed at 1%, the slowest pace of growth since the coronavirus-led recession in 2020. The anticipated 1.1% barely surpasses such a mark, and will continue to indicate that the Australian economy has not yet turned the corner. 

What to expect from the Q3 GDP report

The Australian economy is expected to have grown by 1.1% annually.  GDP figures are among those that have a large impact on the local currency, in this case, the Australian Dollar (AUD).

Meanwhile, the Reserve Bank of Australia (RBA) keeps interest rates unchanged. The Official Cash Rate (OCR) was lifted for the last time in November 2023 and currently stands at 4.35%, and the RBA Board has maintained it there for over a year now amid stubbornly high inflation. 

Higher interest rates have finally done the job. According to the latest data from the Australian Bureau of Statistics (ABS), the October monthly Consumer Price Index calculated year-over-year (YoY) printed at 2.1% for a second consecutive month. It is worth remembering that the RBA’s goal is to keep inflation between 2% and 3% YoY.

Even further, the quarterly CPI rose 0.2% in the three months to September and by 2.8% compared to the same quarter of 2023, its lowest increase in over three years and falling back into the RBA’s target band. The Q3 RBA Trimmed Mean CPI, the RBA’s favorite inflation gauge, was up 0.8% in the quarter and by 3.5% from a year earlier, easing from the previous 4% but still a tad higher than the RBA’s goal. 

On the contrary, higher interest rates also mean slower economic progress amid higher financial costs. Lowering the OCR would spook the ghost of recession, yet probably revive inflationary pressures. However, boosting the economy is not within the RBA’s mandate. 

Theoretically, growth-related figures should not affect policymakers’ decisions. Nevertheless, they do. RBA officials will not acknowledge concerns on the matter but rather maintain the focus on inflation.

The RBA will hold the last monetary policy meeting of the year next week but will likely maintain the OCR unchanged. The most optimistic outlook is that the first interest rate cut will come in February 2025, although there is increased speculation that the RBA won’t act until later in the year, probably around May.

How can the GDP report affect the Australian Dollar?

The GDP report will be released on Wednesday at 00:30 GMT, and market participants will consider the impact of the figures on upcoming RBA decisions. Upbeat growth-related figures could have a positive impact on the AUD while providing policymakers with the relief they need to keep rates at record levels.

However, lower-than-expected figures would mean the risk of a recession is becoming more real. The AUD may take the hit as policymakers could be forced to acknowledge a rate cut is necessary to prevent a steep economic setback. 

Valeria Bednarik, Chief Analyst at FXStreet, notes: “The AUD/USD pair trades near the lower end of its November range amid broad US Dollar’s (USD) strength. The ongoing near-term recovery amid a better market mood is not enough to put the pair on a bullish track. Technical indicators in the daily chart remain within negative levels, offering modest upward slopes that suggest mounting USD selling rather than AUD buying. Even further, a firmly bearish 20 Simple Moving Average (SMA) provides dynamic resistance since mid-November, currently standing at 0.6514.”

Bednarik adds: “Better-than-anticipated GDP readings could push the pair beyond the mentioned resistance level and send AUD/USD towards 0.6570, a static resistance area. Nevertheless, the pair may resume its slide once the dust settles. Persistent risk appetite, however, may keep it afloat. The November monthly low at 0.6433 provides immediate support en route to the 0.6350 price zone, where AUD/USD bottomed in August.”