Investing.com – The Australian dollar weakened sharply on Wednesday after worse-than-expected gross domestic product data raised expectations that the Reserve Bank will cut interest rates earlier in 2025.

By 10:30 p.m. ET (03:30 GMT), the pair was down 1.1% at $0.6411.

The third quarter grew 0.8% year over year, missed expectations of 1.1% and slowed from the 1% recorded in the previous quarter.

rose to 0.3% but fell brief of expectations of 0.5% while falling below the RBA forecast of 0.5%.

The weaker reading was mainly due to tender private spending as persistent inflation and high mortgage rates dampened consumer appetite. Export prices for gentle commodities also weighed on demand abroad, particularly in China, which remained low.

The reading sparked speculation that the RBA would be forced to ease policy sooner or later, especially since GDP failed to meet its forecasts.

“The release of Australia’s next summer quarter GDP resulted in the Australian interest rate market pushing back the first RBA rate cut by 25 basis points in April from May,” Tony Sycamore, market analyst at IG, wrote in a social media post.

The GDP data undermines recent signals from RBA members that the central bank will keep interest rates high for an extended period of time, particularly amid recent signs of sustained underlying inflation.

October data showed core inflation remaining well above the RBA’s target range of 2-3%, with the bank only forecasting inflation to fall sustainably within target by 2026.

While the central bank has said its top priority is cooling inflation, easing economic conditions in the country could spur early interest rate cuts.

Both ANZ and Westpac expect the RBA to start cutting interest rates by May 2025 as part of a subtle interest rate easing cycle.

Capital Economics said in a note Wednesday that the bank “will begin a short cycle of monetary easing in the second quarter of next year.”