FX Weekly Overview (Brazil Issue)
Dollar to reflect US economic data, Central Bank minutes, inflation in Brazil, and the Middle East
Leonel Mattos
- Currencies
Australia Q2 GDP Surprise Pushes Back Aggressive RBA Rate Cuts
Australia Q2 GDP Surprise Pushes Back Aggressive RBA Rate Cuts
David Scutt, FOREX.com APAC Market Analyst, breaks down the stronger-than-expected GDP result and its implications for policy and markets.
Key Takeaways
- Household spending lifted growth as savings fell
- RBA may slow rate cuts as inflation pressures persist
- Bond and equity markets sold off after the GDP surprise
Households Drive Growth
Growth in the June quarter was powered by households, with spending rising 0.9 per cent, the strongest lift in non-essential purchases in three years. The household savings ratio dropped to 4.2 per cent, signalling a willingness to draw on buffers. Rising house prices and a resilient labour market added to signs of a private sector recovery.
Investment and Exports
Government consumption supported GDP, but this was offset by the largest fall in public investment since 2017 outside the pandemic. Business investment remained flat, while net exports contributed positively thanks to stronger iron ore and LNG shipments following earlier weather disruptions.
Productivity and Inflation Pressures
Productivity growth stayed weak, with output per hour little changed. Unit labour costs rose 4.4 per cent over the year. “That may have been the smallest increase since mid-2022 but it remains well above the RBA’s 2.5 per cent target”. The combination suggests underlying inflationary pressures will remain despite modest growth.
Policy and Market Impact
The GDP upside surprise challenged the RBA’s recent caution. With consumption stronger than expected and households saving less, the Bank may have less reason to cut aggressively. Traders priced out near-term easing, with only a 17 per cent chance of a September cut. Bond futures plunged and equity markets, especially banks, sold off as global yields rose.
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---- Written by Frederic Guetin, StoneX TV Producer>
---- Expert: David Scutt, FOREX.com APAC Market Analyst
- Currencies
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