AUD/USD and NZD/USD Fundamental Daily Forecast – Australia Posts Strong GDP Numbers, but Recession is Not OverDespite the solid Australian GDP data, there is still a lot of uncertainty about the economy, which is leading officials to predict a “bumpy and uneven” recovery.
The risk-sensitive currencies are trading mixed on Wednesday with the Aussie edging higher after an upbeat report showed Australia’s economy rebounded more strongly than expected in the third quarter. The Kiwi is dipping on profit-taking, but holding steady after hitting its highest level since April 2018 in the overnight trade.
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Australia’s Economy Rebounds Sharply in Third-Quarter from COVID-19 Recession
Australia’s economy rebounded sharply in the third quarter from a coronavirus-induced recession as consumer spending surged though the country’s top central banker signaled monetary policy will stay accommodative for a while.
Data out earlier showed the A$2 trillion ($1.5 trillion) economy expanded by a bigger than expected 3.3% in the September quarter, following a 7% contraction in June, as the country largely got COVID-19 under control.
The rebound was led by household spending, which rose 7.9%, driven by massive fiscal and monetary stimulus since March.
Economic growth is expected to be “solidly positive” in the December quarter as well, Reserve Bank of Australia (RBA) Governor Philip Lowe said, underscoring the country’s success in curbing the pandemic.
Escalating Tensions with China Could Weigh on Positive Outlook
Despite the strong rebound in growth, Australia is not yet out of the woods, as escalating tensions with top trading partner China hang heavily on the outlook.
Australian Treasurer Josh Frydenberg said on Wednesday the deteriorating trade relationship with China was a “very serious” matter though domestic consumption was key to Australia’s post-pandemic recovery.
China has so far curtailed Australia’s exports of lobsters, beef, timber, coal and wine though the broader economic hit is expected to be minimal as long as iron ore is spared, analysts said.
Agriculture exports account for just 0.02% of Australia’s annual output, while iron ore exports account for 7.5% of GDP.
“We expect some softening in tensions, especially given China’s multi-decade need to source key bulk commodities and metals from Australia,” said Paul Xiradis, chief investment officer at Ausbil.
The strong GDP data is just a start, but the economy seems to be on the right track toward a recovery from the pandemic. Economic output is still down 3.8% over the year after Australia entered its first recession in three decades in the first half of 2020 due to coronavirus-driven lockdowns.
Despite the solid data, there is still a lot of uncertainty about the economy, which is leading officials to predict a “bumpy and uneven” recovery.
Meanwhile, the Australian Dollar as well as the New Zealand Dollar are going to continue to receive support from increasing demand for riskier currencies tied to the COVID-19 vaccine and expectations of further stimulus from the U.S. government.
For a look at all of today’s economic events, check out our economic calendar.