The Australian dollar has soared higher after stronger than expected first quarter GDP data caught the market by surprise.
With a 1.1% quarter on quarter print which took the year on year rate to 3.1%, the strength in GDP has undermined many of the calls for both 1% RBA cash rates and an Aussie dollar at 60 or 65 cents by reminding traders that on an absolute and relative basis, Australia remains stronger than many thought.
Interest rates across the curve have risen as a result, taking the Aussie dollar higher with them.
Traders and forecasters will be reevaluating their recent bearishness after this number. And while the GDP deflator’s fall of 0.6% suggests the RBA will continue to retain its easing bias, the overall move toward lower rates is likely to be significantly more cautiously undertaken than many forecasters had penciled in.
That will support the Aussie on any weakness over and above other drivers and the potential for US dollar strength.
Here’s the chart: