Australian Dollar Gains Momentum as Hawkish RBA Counters Weak Q3 GDP
By Haresh Menghani, FXStreet – March 12, 2025
The Australian Dollar (AUD) strengthened against the US Dollar (USD) on Wednesday, bouncing back from earlier setbacks following a soft third-quarter GDP report. The Reserve Bank of Australia’s (RBA) hawkish stance helped offset concerns about slowing economic growth, underpinning the currency’s resilience. Meanwhile, the US Dollar remains pressured amid rising expectations for an interest rate cut by the Federal Reserve, further supporting AUD/USD’s climb toward key resistance levels.
Australian Economy’s Soft Q3 Growth Surprised Markets
The Australian Bureau of Statistics released third-quarter GDP figures showing a 0.4% expansion, down from 0.6% in the previous quarter and missing economists’ forecasts. On an annual basis, GDP growth slowed to 2.1% from 2.4% the previous quarter. The disappointing print triggered minor selling pressure on the AUD during early Asian trade but failed to persist throughout the day.
RBA’s Hawkish Tone Bolsters AUD Outlook
Reserve Bank of Australia Governor Michele Bullock’s recent comments locked investors’ attention. Speaking before a parliamentary committee, Bullock emphasized that the central bank is closely monitoring inflation data to determine whether current price pressures are "temporary or persistent." She hinted that if inflation remains sticky, it could influence future monetary policy, suggesting limited scope for further rate cuts.
Supporting this outlook are recent inflation numbers showing the Consumer Price Index (CPI) rose by 3.8% year-on-year in October, up from 3.5% in the previous month. The RBA’s favored Trimmed Mean CPI also accelerated to 3.3% from 3.2% in September. Both figures exceed the Bank’s 2-3% target range, justifying a cautious approach to policy easing and bolstering the AUD’s appeal.
Mixed Global Data and Fed Rate Cut Expectations Influence Markets
While China’s Services Purchasing Managers’ Index (PMI) for November slipped slightly to 52.1 from 52.6 in October, it remained above forecasts, providing modest support for the AUD as a proxy for Chinese economic activity.
On the other hand, the US Dollar hovered near its weakest levels since mid-November, pressured by growing market bets on a Federal Reserve rate cut at the December 10 meeting. CME Group’s FedWatch Tool now prices in nearly a 90% probability of a 25 basis-point cut. Speculation around a dovish Fed chair pick further weighs on the USD.
The prospect of looser US monetary policy, coupled with ongoing hopes for a peace agreement between Russia and Ukraine, has fostered a positive mood in equity markets. This “risk-on” environment typically favors the Australian Dollar, a currency sensitive to global growth and commodity demand.
Technical Outlook: AUD/USD Eyes Key Resistance Levels
Technically, AUD/USD has broken above a descending trendline extending from September’s swing high and is trading above its 100-day simple moving average (SMA), signaling strength. Momentum indicators on the daily chart show increasing bullish momentum but have yet to enter overbought territory, indicating room for further gains.
Near-term support for the pair lies around 0.6530–0.6535, a region previously acting as resistance, along with the psychologically significant 0.6500 level. A drop below 0.6500 could open the door for a test of the 200-day SMA near 0.6465 or even recent lows around 0.6420. On the upside, a sustained break above the 0.6600 mark would likely fuel further gains toward the 0.6660–0.6665 resistance zone. Beyond that, the pair could test yearly highs above 0.6700, seen in September 2024. ### Market Participants Await Major US Economic Data
Investors are now focused on upcoming US economic releases for fresh momentum shifts. The US ADP report on private-sector payrolls and the ISM Services PMI are due this week and may offer insights into labor market health and service sector conditions.
However, the most market-moving event could be Friday’s release of the Personal Consumption Expenditures (PCE) Price Index, a key Fed inflation gauge. The data will provide critical clues on the central bank’s future rate path, influencing the USD’s direction and, by extension, AUD/USD’s trajectory.
Understanding Risk Sentiment and Its Impact on Currencies
In market jargon, "risk-on" refers to periods when investors are optimistic and favor buying higher-risk assets, including stocks and commodity-linked currencies like the AUD, CAD, and NZD. Conversely, "risk-off" phases see investors seeking safety, boosting demand for assets like government bonds, gold, and safe-haven currencies such as the USD, Japanese Yen, and Swiss Franc.
Currently, market conditions reflect a moderately risk-on sentiment, benefiting the Aussie amid hopes for accommodative US rates and stabilizing global growth prospects.
Summary: Despite weaker-than-expected Q3 GDP data, the Australian Dollar strengthened thanks to a hawkish RBA outlook on inflation and the prospect of US Federal Reserve easing. Technical indicators suggest further upside potential for AUD/USD toward 0.6600 and beyond, with traders eyeing key US economic reports and inflation data for direction.
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