Australian dollar retreats on better than expected US GDP data

Following the publication of better-than-expected US GDP figures for the second quarter, the Australian Dollar retreated against the US Dollar on Thursday. The aud/usd pair is trading down by -0.20 at 0.6742 at the time of writing.

The report revealed stronger-than-expected labour market data, stronger-than-expected durable goods orders, lower-than-expected GDP price index, and a quicker 2.4% growth rate than was anticipated. This implies that the economy is getting better.

In his press conference at the FOMC on Wednesday, Fed Chairman Jerome Powell observed how core inflation had fallen while the labour market remained robust, but he declined to commit to further rate hikes in the future. This put pressure on the USD. The market perceived Powell’s overall tone to be dovish, indicating that interest rates may drop sooner.

The Australian dollar fell early on Wednesday as a result of the release of Consumer Price Index (CPI) data for Q2, which revealed a far greater decline in inflation than had been anticipated. Compared to the 7.0% in Q1 and the 6.2% expectation, Australian CPI inflation came out at 6.0% in Q2 YoY. The preferred measure used by the Reserve Bank of Australia, the RBA Trimmed Mean CPI, which is measured every quarter, rose by 5.8% YoY in Q2 as opposed to the expected 6.0% increase and the 6.6% in Q1.

Because variable-rate mortgages dominate the Australian housing market, making it more susceptible to interest rate changes, and because homeowners have recently been negatively impacted by rising mortgage repayments, there is a chance that the RBA will have to lower rates in 2024.