Investing.com– The Australian dollar fell sharply on Wednesday after weaker-than-expected gross domestic product data fueled increased bets that the Reserve Bank will cut interest rates earlier in 2025.
The pair slipped 1.1% to $0.6411 by 22:30 ET (0330 GMT).
The third quarter rose 0.8% year-on-year, missing expectations of 1.1% and slowing from the 1% reported in the previous quarter.
rose to 0.3% but missed expectations of 0.5%, while also falling below the RBA’s forecast of 0.5%.
The softer reading was largely driven by weak private spending, as sticky inflation and high mortgage rates dampened consumer appetite. Low commodity export prices also had an impact as foreign demand, particularly in China, remained weak.
The reading fueled speculation that the RBA will be forced to ease policy sooner rather than later, especially as GDP came in lower than forecast.
“The release of another quarter of tepid AU GDP resulted in the withdrawal of the first 25bp RBA rate cut in the Australian interest rate market in April since May,” Tony Sycamore, market analyst at IG wrote in a social media post.
The GDP data undermines recent signals from RBA members that the central bank will keep interest rates high for longer, particularly amid recent signs of sticky core inflation.
data for October showed core inflation remained well above the RBA’s target range of 2% to 3%, with the bank only forecasting inflation to fall sustainably within its target until 2026.
While the central bank has said that reducing inflation is its top priority, easing economic conditions in the country could prompt an early interest rate cut.
ANZ and Westpac expect the RBA to start cutting rates by May 2025 in a gentle easing cycle.
Capital Economics said in a note on Wednesday that the bank “will begin a short easing cycle in the second quarter of next year.”
