Australian Dollar Overcomes Weak GDP, Boosted by Strong China Data

AUD/USD Holds Steady: The Australian dollar held steady, hovering around $0.665, as domestic economic data proved less disappointing than markets feared. Despite weaker-than-expected GDP growth, relief came as the economy avoided an outright contraction.

GDP Growth Misses Expectations: Australia’s Q1 GDP growth fell to 0.1% QoQ, down from 0.3% in the previous quarter, missing the consensus forecast of 0.2%. This brought YoY growth down to 1.1% from 1.6%, below the expected 1.2%. Although growth slowed, the fact that the economy did not contract provided some support for the Australian dollar.

Impact of Chinese Economic Data: The Australian dollar’s resilience can be attributed in part to improving economic data from China, Australia’s largest trading partner. The Caixin Composite PMI in China rose to a 12-month high of 54.1 in May, driven by an uptick in the Caixin Services PMI, which climbed to 54.0, its best level since July 2023. The Manufacturing PMI also reached a two-year high earlier in the week.

Market Reaction: The positive Chinese economic data helped offset the impact of the weaker Australian GDP figures, supporting the AUD. The market’s focus on the strong performance of China’s economy, particularly in the services and manufacturing sectors, provided support for the Australian dollar.

RBA Governor Cautious: RBA Governor Michele Bullock acknowledged the recent GDP data was weaker than anticipated. She also recognized signs of easing in the labour market, while reiterating the RBA’s commitment to act if inflation remains stubbornly high.

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