Australia passes GDP ‘health check’ with flying colours

Australia passes GDP ‘health check’ with flying colours

By Tim Waterer (Senior Trader, CMC Markets)

The GDP result came like a bolt from the blue which sent the Australian Dollar soaring, with traders re-assessing the interest rate picture over coming months. If the RBA was tempted to go with a 50 basis point cut on Tuesday, they will now be breathing a collective sigh of relief that they opted for just the quarter percent cut.

GDP serves as an economic health check and the Australian economy passed with flying colours. Against this expansionary backdrop it is difficult to envision the RBA ‘staying the course’ on the current rate cutting cycle. The GDP result combined with a stabilisation of events in Europe could see the RBA in ‘pause mode’ for several months on rates. The fear of overshooting to the downside becomes a realistic event if the economy can achieve anywhere near this pace of growth over the next two quarters.

Given the bonanza GDP print, a solid jobs number on Thursday would reinforce the positive domestic view and open the door for the AUD to get to 0.9940 and within range of parity. Conversely, soft employment data would see some of the GDP-driven gains eroded

The AUD could be in store for a good evening once offshore investors do a double take on the 1.3% quarterly GDP growth, however any negative murmurs regarding Spain would instead see the US Dollar supported.

The Australian share market did not seem to have much left in the tank today following Tuesdays bounce-back move. While the GDP result provided a temporary boost, the effects quickly wore off and shares traded in listless fashion thereafter. Traders appear to have adopted a neutral mindset as we await clues from the US and Europe regarding any potential stimulus efforts (ECB press conference tonight, Ben Bernanke speaking on Thursday in the US). We have seen Materials and Energy stocks outperform the broader market given the better showing of some key commodity prices including gold and oil. However trading is quite tepid in nature given the Spanish banking situation still appears to be balanced on a knife’s edge.
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