The Australian and New Zealand Dollars are trading higher early Wednesday on the back of better-than-forecast Australian economic growth data. The currencies have recovered from Tuesday’s slight setback that was fueled by profit-taking and position-squaring ahead of Tuesday’s report and in reaction to the Reserve Bank of Australia’s Rate Statement.
On Tuesday, the AUD/USD settled at .7616, down 0.0032 or -0.42% and the NZD/USD finished the session at .7024, down 0.0006 or -0.08%.
To recap Tuesday’s events, the Reserve Bank of Australia (RBA) kept interest rates steady in June, an outcome widely expected by economists and markets. The cash rate has remained at 1.5% for 20 consecutive meetings, the longest stretch on record without a move in either direction.
That policy inaction looks set to remain in place for some time yet with the board making few significant changes in the policy statement. Futures trading suggests the next 25 basis point rate hike may take place in November 2019.
The RBA said, “The low level of interest rates is continuing to support the Australian economy.” It also added, “Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual.
Finally, “Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.”
The RBA added that household consumption remains a “continuing source of uncertainty”. However, it removed the line that stronger economic growth “should see some reduction in spare capacity in the economy”. It also removed the line that unemployment rate had “declined over the past year”. It also dropped the view that labor market conditions were “improving”, something it previously said in May.
The Australian Dollar is higher on Wednesday, helped by a robust GDP report. This news is also helping to drag the New Zealand Dollar higher.
At 0427 GMT, the AUD/USD is trading .7658, up 0.0041 or +0.56% and the NZD/USD is at .7041, up 0.0017 or +0.25%.
Australian economic growth rose strongly in the first three months of the year, boosted by household consumption, government demand, stronger exports and a lift in business inventories.
The economy expanded by 1% in real terms, leaving the increase on a year earlier at 3.1%, the fastest since the middle of last year.
Stronger growth in exports contributed half of the quarterly increase. Along with firm government demand, this masked a sharp slowdown in household consumption.
Momentum is on the side of the AUD/USD and NZD/USD early Wednesday and this trend should continue throughout the session. Especially bullish news that better-than-expected quarterly increase saw year-on-year growth rise to 3.1%, well above the 2.8% level is the primary price driver today.
Despite the strength of the report, traders still feel the RBA will not make a change to its benchmark interest rate until late 2019.