Investing.com — The Australian dollar weakened sharply on Wednesday after softer-than-expected gross domestic product data raised expectations that the Reserve Bank will cut interest rates earlier in 2025.
The pair fell 1.1% to $0.6411 at 10:30 PM ET (03:30 GMT).
The third quarter grew 0.8% year over year, beating expectations of 1.1% and slowing from 1% in the previous quarter.
rose to 0.3% but missed expectations of 0.5%, while also falling below the RBA’s 0.5% forecast.
The softer data was mainly due to weak private spending, as persistent inflation and high mortgage rates eroded consumer appetite. Export prices for soft commodities also weighed on as foreign demand, especially in China, remained weak.
This reading led to speculation that sooner or later the RBA will be forced to ease policy, especially as GDP has missed its forecasts.
“The publication of another quarter of the African Union’s tepid GDP has led the Australian rates market to bring forward an initial RBA rate cut of 25 bps in April from May,” Tony Sycamore, market analyst at IG, wrote in a note post on social media.
The GDP data undermines recent signals from RBA members that the central bank will keep rates high for longer, especially against the backdrop of recent signs of persistent underlying inflation.
Data for October shows underlying inflation is still well above the RBA’s target of 2% to 3%, with the bank only forecasting inflation to remain sustainably within its target by 2026.
Although the central bank has said that cooling inflation is its top priority, the country’s weakening economic conditions could spur early rate cuts.
ANZ and Westpac both expect the RBA to start cutting rates in a mild easing cycle by May 2025.
Capital Economics said in a note on Wednesday that the bank will “initiate a short easing cycle in the second quarter of next year.”
