Australia’s Gross Domestic Product (GDP) grew 0.6% QoQ in the fourth quarter (Q4) of 2024 compared with the 0.3% growth in the third quarter, the Australian Bureau of Statistics (ABS) showed on Wednesday. This reading came in above expectations of 0.5%.
The annual fourth-quarter GDP expanded by 1.3%, compared with the 0.8% growth in Q3 while above the consensus of a 1.2% increase.
Market reaction to Australia’s GDP data
The upbeat Australia GDP report fails to boost the Australian Dollar (AUD). The AUD/USD pair is trading at 0.6258, adding 0.12% on the day.
AUD/USD 15-minute chart
This section below was published at 21.45 GMT on Wednesday as a preview of the Australia’s Gross Domestic Product report
- Australian Gross Domestic Product is foreseen at 0.5% in the last quarter of 2024.
- The Reserve Bank of Australia hinted at a cautious approach to interest rate cuts.
- The Australian Dollar could run towards 0.6300 vs the USD on an upbeat GDP report.
The Australian Gross Domestic Product (GDP) will be out early on Wednesday. The fourth quarter (Q4) figures released by the Australian Bureau of Statistics (ABS) are expected to show that the economy made modest progress in the last three months of 2024. The quarter-on-quarter (QoQ) GDP is foreseen at 0.5%, improving from the 0.3% posted in the previous quarter, while the annualised reading is foreseen at 1.2% after posting 0.8% in Q3.
Slow progress in Australia is partially due to the Reserve Bank of Australia (RBA), as the central bank decided to maintain interest rates on hold at multi-decade highs throughout 2024 to fight stubbornly high inflation.
What to expect from the Q4 GDP report
As said, the Australian economy is expected to have posted a modest 1.2% annualised growth in the last quarter of 2024. GDP data tends to impact significantly the local currency, in this case, the Australian Dollar (AUD).
However, financial markets may take the figures with a pinch of salt. Indeed, record interest rates have weighed on economic developments, yet the RBA finally delivered an interest rate cut in its early February meeting. The Official Cash Rate (OCR) now stands at 4.1%, down 25 basis points (bps) from 4.35%, which means the impact of higher interest rates should start to recede. It will be a long process, but at least the Board took a first step, boosting investors’ hopes.
With time, rate reductions should help stabilise growth around long-term trends while keeping inflation within target. It is worth noting that real GDP per capita fell for seven consecutive quarters as of Q3 2024, driven by restricted household spending amid higher rates.
Meanwhile, it is also worth remembering that the RBA has had a cautious approach to interest rate cuts. The recently released Minutes showed the Board “was not yet assured” inflation could be returned to the target range with a lower OCR. “As a result, members expressed caution about the prospect of further policy easing, which could also be seen in the forecast for inflation based on the market path,” the document reads.
Ahead of the announcement, analysts from the Westpac Banking Corporations noted: “We have upgraded our forecast of economic growth following the latest batch of partial activity indicators in the run-up to Q4 GDP, due tomorrow. We now expect the economy grew by 0.7% in Q4, up from our initial estimate of 0.4% in our preview last week. The upside surprise on business inventories was met with a lower-than-anticipated growth in imports, albeit with some of the latter pointing to slightly softer domestic demand.”
At the same time, the National Australian Bank (NAB) expects a GDP print of 0.5% QoQ and 1.2% YoY. “We continue to expect GDP growth to strengthen over 2025 making H2 2024 the low point in growth for the cycle.”
How can the GDP report affect the Australian Dollar?
The GDP report will be released on Wednesday at 00:30 GMT. Ahead of the release, the Australian Dollar (AUD) struggles to advance against its American rival. The US Dollar (USD) is under selling pressure amid fresh fears of a United States (US) economic slowdown following US President Donald Trump’s decision to go on with tariffs on Canada, Mexico and China. At the same time, a risk-averse environment weighs on the Aussie, leaving the AUD/USD pair within familiar levels.
Generally speaking, upbeat figures should boost the AUD, while a slide should be expected if numbers miss expectations.
Valeria Bednarik, Chief Analyst at FXStreet, notes: “The AUD/USD pair trades just above the 0.6200 mark ahead of the announcement, trapped between USD broad weakness and risk aversion. The daily chart suggests bears retain control, albeit slides towards the 0.6200 figure are attracting buyers. The intraday low following Trump’s levies was set at 0.6201. The latter could give up on a discouraging GDP outcome and result in a slide towards the 0.6100-0.6130 region, as the dismal mood will add to the bearish case.”
Bednarik adds: “Stronger-than-anticipated Australian growth could help AUD/USD run past 0.6253, the weekly high, and reach the 0.6300 threshold. Beyond the latter, resistance comes at 0.6330 and 0.6370.”
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
Economic Indicator
Gross Domestic Product (QoQ)
The Gross Domestic Product (GDP), released by the Australian Bureau of Statistics on a quarterly basis, is a measure of the total value of all goods and services produced in Australia during a given period. The GDP is considered as the main measure of Australian economic activity. The QoQ reading compares economic activity in the reference quarter to the previous quarter. Generally, a rise in this indicator is bullish for the Australian Dollar (AUD), while a low reading is seen as bearish.
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Source: https://www.fxstreet.com/news/australia-gross-domestic-product-set-to-show-a-modest-uptick-in-the-last-quarter-of-2024-202503042145