The Australian dollar fell after GDP data came in below expectations, sending the currency weaker against the US dollar. Data from the Australian Bureau of Statistics showed that Australia’s GDP grew by 0.2% quarter-on-quarter in the second quarter of 2024, slightly higher than the 0.1% growth recorded in the first quarter. However, this growth was below expectations for a 0.3% increase. Additionally, after adjusting for population growth, GDP contracted on a per capita basis for the sixth consecutive quarter, setting a new record. This decline in economic growth reflects a significant weakness in Australia’s economic performance, which put pressure on the Australian dollar and pushed it lower against the US dollar.
Technical Analysis Technical Breakout: The AUD/USD pair has seen a significant decline after breaking the previous support level at 0.67000. The MACD indicator is indicating a strong sign of bearish momentum, suggesting that the pair may continue to record further losses.
Resistance and Support: If the downward momentum continues, the price is likely to decline towards the 0.66400 level. On the other hand, if the trend reverses, the price could rise again towards the 0.67550 level, provided that it manages to break the 0.67000 level again.
Potential Risks In the near future, traders are awaiting the upcoming speech by Reserve Bank of Australia Governor Michelle Bullock, which will be delivered on Thursday. They aim to gain additional insights into the central bank’s hawkish stance towards monetary policy. Moreover, traders will be paying attention to upcoming economic data, such as the Institute for Supply Management’s services PMI and non-farm payrolls data. These data may shed light on the potential size of the interest rate cut that the Federal Reserve may decide to make this month.
Australian Economy Grows by 0.2% in Q2 2024
Australian GDP increased by 0.2% in Q2 2024, reflecting continued growth for the eleventh consecutive quarter. However, the Australian economy grew by 1.5% annually in 2023-24, the weakest annual growth rate since 1991-92, excluding the COVID-19 pandemic. The 1991 recession was the year that saw a gradual recovery. The figures suggest that the weak growth reflected weak household demand, which subtracted 0.1 percentage points from GDP growth. Government consumption, by contrast, contributed 0.3 percentage points to growth, the same as in the previous quarter.
Domestic prices continue to grow while terms of trade decline: Nominal GDP increased by 0.2%, while the implicit price deflator remained flat in the second quarter of the year. The increase in domestic prices was offset by lower export prices relative to import prices. Domestic final product demand (IPD) rose by 0.9% in Q2 2024 and by 4.6% in 2023-24. Rising construction prices and a shortage of skilled labour continue to drive growth in this area, although prices have eased from their peak in 2022-23 (+6.6%). Terms of trade fell by 3.0% as export prices fell relative to import prices. Mineral commodity prices fell for the second consecutive quarter, due to weaker global demand for iron ore and coal. Import prices, however, remained flat on the previous quarter, with higher freight rates offset by lower oil prices.
Net trade contributed to the growth
Net trade contributed about 0.2 percentage points to GDP growth, with exports up 0.5% while imports fell a modest 0.2%. The rise in exports was driven by increased education-related travel services, with spending by international students rising significantly in Q2 2024 compared to March and December. However, goods exports were less strong, with international demand for non-monetary gold falling and poor grain harvests weighing on exports of rural goods.
In terms of imports, goods led the decline. Imports of machinery, industrial equipment and manufactured industrial supplies fell after a significant increase in imports in March. However, imports of services helped offset some of the decline, thanks to increased spending on travel and other services. Increased travel services also contributed to the overall rise in spending, as Australian residents spent more time in nearby destinations such as Indonesia, Japan and Thailand.
Gross value added continues to grow weakly: Gross value added rose by 0.3% this quarter, with increases in 13 of the 19 industries. Service industries led the rise in Q2 2020, with media and communications (+1.6%), professional, scientific and technical services (+0.4%) and transport, postal and storage (+0.6%) all growing. Non-market industries saw growth for the seventh consecutive quarter, in line with demand for essential services.
Healthcare and social assistance (+0.4%) rose as GP visits and demand for pathology services increased following an early and severe influenza season. The mining sector (-0.3%) was the main factor holding back growth in Q2, with adverse weather affecting coal and LNG production, which was offset by higher iron ore production. The arts and entertainment services sector (-0.8%) and accommodation and food services (-0.3%) also declined after large-scale music and sporting events saw activity in these industries increase in the previous quarter.
