AUD: Big miss on GDP but fallout may be limited for now – MUFG

Derek Halpenny, European Head of GMR at MUFG, notes that the Australian dollar is the worst performing G10 currency so far today after the shock GDP report for Q3 that revealed a 0.5% contraction in contrast to an expectation of a 0.1% contraction.

Key Quotes

“In truth though, that consensus was lower following the net trade data yesterday. The rates market has responded as expected although the fallout has been contained, with the 2-year yield down 3-4bps. The lack of reaction is probably best explained by the fact that the RBA yesterday did mention there would be “some slowing in the year-end growth rate” before “it picks up again”. So while weaker than perhaps the RBA expected, the likelihood is that the RBA will look through this for now.”

“The AUD/USD downside may also be limited by the fact that the US yield move has probably run its course for now given an FOMC rate hike next week is fully priced while Australia’s terms of trade has improved notably of late. Iron ore prices are 24% higher since the start of November.”