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Australian Dollar Flat Despite Better-than-Expected GDP

December 2, 2020 at 6:37 by Vladimir Vyun

Banjo Paterson on Australian 10-dollar billThe Australian dollar was trading flat today even though Australia’s gross domestic product rose more than was expected and the central bank’s chief delivered a rather optimistic speech.

The Australian Bureau of Statistics reported that GDP rose by 3.3% on a seasonally adjusted basis in the third quarter of 2020 from the previous three months. The consensus forecast had promised a slower growth of 2.5%. The increase followed the record 7.0% drop in the previous quarter. While the economy has technically exited recession, it is still a long way before economic activity reaches the pre-pandemic levels. Compared with the same period of the last year, the economy shrank by 3.8% last quarter.

Philip Lowe, Governor at the Reserve Bank of Australia, testified before the House of Representatives Standing Committee on Economics, in Canberra, today. He was rather optimistic in his speech, saying that “we have now turned the corner and a recovery is underway” and “the economic news has, on balance, been better than we were expecting”. He warned against excessive optimism, though, stating that “the recovery will be uneven and bumpy and that it will be drawn out”. The Governor mentioned the recent good news regarding the coronavirus vaccine development:

Recent medical breakthroughs give us some hope that things will work out better than this. If so, confidence would lift and there would be a further easing of restrictions. The result would be an upside surprise to growth and jobs, especially given the significant policy stimulus that is already in place, the generally strong balance sheets and the substantial government incentives for businesses to employ people and invest.

As for monetary policy, Lowe said that policymakers are “prepared to do more, if that is required” but he thinks that negative interest rates are extremely unlikely:

Having said that, we are still of the view that a negative policy interest rate in Australia is extraordinarily unlikely, with any benefits being outweighed by the costs.

AUD/USD was basically unchanged at 0.7371 as of 6:36 GMT today. EUR/AUD rose a little from the opening of 1.6369 to 1.6375 after falling to 1.6333 earlier. AUD/JPY ticked up from 76.88 to 77.01.

If you have any questions, comments, or opinions regarding the Australian Dollar, feel free to post them using the commentary form below.

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