AUD/USD Slips on Disappointing Australian Data
The AUD/USD currency pair fell nearly 0.75% on Tuesday, trading in the 0.6640s, after the release of weaker-than-expected Australian economic data.
Australian Current Balance:
- Larger-than-Expected Deficit: The data for Q1 revealed a 4.9 billion AUD deficit, significantly exceeding forecasts of a 5.9 billion AUD surplus.
- Trade Imbalance and Lower Growth: This indicates a trade balance favoring imports, raising concerns about slower Australian economic growth.
- Downward Revision of Previous Surplus: The previously reported 11.6 billion AUD surplus for Q4 was revised down to 2.6 billion AUD.
Impact on GDP Growth:
- Lower GDP Growth Estimates: Economists are revising down their estimates for Q1 GDP growth, expected to be released on Wednesday.
- Consensus Estimates: Initial forecasts were 0.2% growth quarter-over-quarter and 1.2% year-over-year.
- Westpac's Revision: Westpac, for example, has lowered its predictions to 0.0% and 1.0% respectively.
Australian Inflation:
- Mixed Picture: Other Australian data offered a mixed view on inflation.
- Melbourne Institute Monthly Inflation Gauge: This gauge rose by 0.3% MoM in May, its highest since January, but cooled to 3.1% YoY, the slowest since January 2022.
- Potential Sign for Official Statistics: This data may indicate a trend in upcoming official inflation figures, but further confirmation is needed.
US Dollar Rebound:
- Profit-Taking and Correction: The US Dollar (USD) is experiencing a slight rebound on Tuesday, with traders taking profits and correcting the sharp decline from Monday.
- Lower US ISM Manufacturing PMI: This decline, attributed to a steep drop in "New Orders," sparked concerns about future US growth.
Fed Rate Cut Expectations:
- Increased Probability: The weak US manufacturing PMI led to increased expectations of a Fed rate cut, with current forecasts suggesting a September cut is more likely than not (around 67% according to CME FedWatch).
Monetary Policy Divergence:
- RBA Rate Cuts: The Reserve Bank of Australia (RBA) is not anticipated to reduce rates until 2025, potentially making it the last G10 central bank to do so.
- Reason for Delayed RBA Action: Australia's persistent high inflation is the primary factor for the RBA's cautious approach.
- Long-Term AUD Outlook: This policy divergence could benefit the AUD in the long term by narrowing the interest rate differential between Australia and the US.
The disappointing Australian economic data triggered a decline in the AUD/USD pair. While the US Dollar is experiencing a temporary correction, the long-term outlook for AUD might be positive due to the potential narrowing of the interest rate gap between the two countries.