The Australian dollar is in positive territory, as investors reacted favourably to today’s GDP report. AUD/USD is trading at 0.7275, up 0.37% on the day.
Australia GDP climbs 3.4%
Australia’s economy rebounded in the fourth quarter, with a gain of 3.4% QoQ, just shy of the consensus of 3.5%. This is an impressive turnaround from Q3, which came in at -1.9%. The primary driver of the robust reading was consumer spending, as pent-up demand was unleashed as Covid lockdowns were removed.
As expected, the RBA maintained its cash rate at a record low 0.10% on Tuesday. Governor Philip Lowe said in his statement that the global economy continued to improve but noted that the war in Ukraine was “a major new source of uncertainty”. Lowe warned that inflation would continue to rise and that the RBA was projecting inflation to hit 3.25% in the coming quarters. This is significant because it indicates that the central bank expects inflation to rise above the bank’s 2-3% target band. Lowe has repeatedly said that he will not raise rates until wage growth accelerates and inflation remains “sustainably” in the target band.
With the torrent of news coming out of Ukraine, it’s easy to forget that there are key economic events occurring as well. Federal Reserve Chair Jerome Powell testify later today on the Hill. Powell’s prepared remarks will state that the Fed intends to raise rates at the March meeting, but the Russian invasion of Ukraine has resulted in significant uncertainty with regard to future hikes. The Fed is expected to embark a rate-tightening cycle at the upcoming meeting, but policy makers may have to scale back the number of hikes given the new economic backdrop and the relentless surge in oil prices, which have punched above the 100 dollar level. There are significant concerns about stagflation if central banks raise rates too quickly.
- There is resistance at 0.7313 and 0.7393
- AUD/USD has support at 0.7124 and 0.7015
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