Australia's GDP figures aren't likely to influence the RBA

The Australian economy grew a little faster than expected last quarter, despite disappointing levels of business investment. GDP rose at the fastest pace in a year at 0.8% q/q, beating an expected rise of 0.7% q/q. The number is encouraging but isn’t likely going to impact the Reserve Bank of Australia’s decision making process. There are still many headwinds facing the Australian economy as it attempts to transition away from mining-fuelled growth.

A slump in investment is being offset by impressive growth in consumer spending, exports and the housing sector. Yet, growth is still running below-trend and could suffer later in the year. Low interest rates and a recent decline in the exchange rate are having a significant positive impact on growth, thus if either of these pillars of support were to be removed, growth would likely suffer. This means that it’s very unlikely the RBA will even start thinking about raising the official cash rate any time soon. But that still leaves us with the Aussie. If the AUD were to appreciate significantly, strong parts of the economy – trade exposed sectors – would suffer, thereby limiting growth. Even if the Australian dollar remains around present levels or weakens further, a lack of investment in non-mining parts of the economy and dwindling mining investment are going to act as a drag on growth.

Source: FOREX.com, Bloomberg

The Aussie

The Australian dollar jumped higher immediately after the data was released, but it didn’t take long for the commodity currency to sink to pre-GDP data levels against the USD. This isn’t entirely surprising given the fact that today’s data doesn’t really change anything. The market and the RBA already knew that growth is running slightly below trend and that the economy isn’t out of the woods yet. AUDUSD did briefly test resistance around 0.9000, before falling back around an hour later. Investors have their eyes on the situation in Ukraine, as well as retail sales and trade balance figures due out of Australia tomorrow and the beginning of the annual NPC in Beijing.