• Australia’s gross domestic product is forecast to grow by 1.1% in the third quarter compared to the same quarter a year earlier.
• The Reserve Bank of Australia is likely to keep OCR suspended until the end of 2025.
• The Australian dollar is gaining in value against its US rival, with sellers waiting for better levels.

Australia will release gross domestic product (GDP) data for the third quarter on Wednesday. The Australian Bureau of Statistics (ABS) is expected to report that the economy grew by 0.4% compared to the previous quarter and 1.1% compared to the third quarter of 2023. Annual growth in the second quarter was 1%, the slowest rate of growth since the coronavirus recession in 2020. The expected 1.1% barely exceeds this mark and will continue to indicate that the Australian economy is yet to recover from the crisis.

What to expect from the GDP report for the third quarter

The Australian economy is expected to grow by 1.1% annually. GDP data is one of those that has a major impact on the local currency, in this case the Australian Dollar (AUD).

Meanwhile, the Reserve Bank of Australia (RBA) keeps interest rates unchanged. The Official Cash Rate (OCR) was last raised in November 2023 to 4.35%, and the RBA has kept it at this level for over a year amid persistently high inflation.

Higher interest rates finally took their toll. According to the latest data from the Australian Bureau of Statistics (ABS), the October monthly year-on-year (y/y) consumer price index was 2.1% for the second month in a row. It is worth remembering that the RBA’s goal is to keep inflation in the range of 2%-3% y/y.

Furthermore, quarterly CPI rose by 0.2% in the three months to September and by 2.8% compared to the same quarter in 2023, representing the lowest growth in over three years and returning to the RBA’s target band. The RBA’s third quarter trimmed average CPI, the RBA’s favorite measure of inflation, rose 0.8% this quarter and 3.5% on a year earlier, down from the previous 4% but still slightly above the RBA’s target .

On the contrary, higher interest rates also mean slower economic progress with higher financial costs. Lowering the OCR would scare away the ghost of a recession, but would likely revive inflationary pressures. However, reviving the economy is not within the RBA’s remit.

Theoretically, growth data should not influence policymakers’ decisions. Nevertheless, it is true. RBA officials do not admit to concerns on this matter, but rather remain focused on inflation.

The RBA will hold its final monetary policy meeting of the year next week, but is likely to leave OCR unchanged. The most hopeful forecast is that the first rate cut will occur in February 2025, although there is increasing speculation that the RBA will only take action later in the year, probably around May.

How might the GDP report impact the Australian dollar?

The GDP report will be released at 00:30 GMT on Wednesday, and market participants will consider the impact of the data on upcoming RBA decisions. Upbeat economic growth data could have a positive impact on the AUD while providing policymakers with the relief needed to keep interest rates at record levels.

However, lower than expected data would mean that the risk of recession is becoming more and more real. The AUD could take a hit as policymakers are forced to admit that a rate cut is necessary to prevent the economy from rapidly deteriorating.

Valeria Bednarik, Chief Analyst at FXStreet, notes: “AUD/USD is trading near the lower end of the November range amid strong strength in the US Dollar (USD). An ongoing short-term recovery amid improved market sentiment will not be enough to put the pair on an upward path. Technical indicators remain negative on the daily chart, offering minor upsides that suggest rising USD selling rather than AUD buying. Moreover, the heavily bearish 20 Moving Average (SMA) has been providing dynamic resistance since mid-November and currently stands at 0.6514.”

Bednarik adds: “Better-than-expected GDP readings could push the pair beyond the mentioned resistance level and push AUD/USD towards 0.6570, the static resistance area. Nevertheless, the pair may resume its decline once the dust settles. However, continued risk appetite may keep it afloat. The November low at 0.6433 provides immediate support towards the 0.6350 price zone, where AUD/USD bottomed in August.”