The Australian dollar hit a one-month high on Wednesday as economists breathed a sigh of relief after the release of weak but as-expected first-quarter GDP growth figures.
The local currency gained a third of a cent to US75.3¢ immediately after the Australian Bureau of Statistics revealed the economy grew by 0.3 per cent over the first three months of the year, in line with consensus expectations. The Aussie then continued to push higher through the session to fetch US75.4¢ in late trade.
The fresh leg-up followed a strong performance overnight, when the Aussie broke through the US75c barrier after the Reserve Bank reaffirmed its expectations of strengthening economic growth in its monthly statement.
Gross domestic product data released at 11.30am on Wednesday showed the economy expanded by just 0.3 per cent over the March quarter, a marked slowdown from the 1.1 per cent growth recorded over the prior quarter.
Year-on-year growth slowed to 1.7Â per cent, from 2.4 per cent.
"This will put GDP closer to the bottom end of the RBA's 2-3 per cent GDP target," TD Securities rates strategist Prashant Newnaha said, in a note in part-titled "Disaster averted".
"It's not stellar, but the print is unlikely to be enough of a trigger to get the RBA off the sidelines and cut rates, which the market is giving some chance of."
While the economy has slowed sharply, the numbers were stronger than some had been predicting, giving traders the relief needed to bid the currency higher.Â
Overnight, a slight recovery in spot iron ore prices, up 0.2 per cent, may have helped buoy the Aussie. Chinese iron ore futures also edged higher on Wednesday. Another supportive factor was a marked decline in the greenback against most currencies on Tuesday night, with the US dollar index, which measures the currency against those of America's major trading partners, falling to its lowest level since early October.
But the global outlook may quickly shift for the Australian dollar, said Westpac chief currency strategist Robert Rennie. He wrote the currency appeared "fairly priced", for now.Â
"With the Fed set to raise rates next week and commodity prices expected to weaken as we move through the end of the year, strength into the US75¢-75.50¢ region is seen as a selling opportunity."
Many analysts have turned bearish on the currency of late, largely due to the increasingly narrow differential between US and Australian long-term bonds, which hit a 16-year low at the end of last month. Declining iron ore prices also do not bode well for the local currency's strength.
This may, however, be exactly what the RBA wants. Its monthly statement on Tuesday noted that "an appreciating currency could complicate [economic] adjustment" – a phrase it has used in every RBA monthly statement since early 2016, even as the currency slipped near US72¢.
The dollar had traded to US75.08¢ shortly after 7am on Wednesday, after hitting what NAB economist Tapas Strickland called a "wall of confusion" on Tuesday. It initially fell 0.4 per cent on the release of weaker-than-expected net export and government spending figures, then fully reversed the decline as traders digested the latest RBA statement later in the day.
As the central bank kept interest rates on hold at 1.5 per cent for the ninth straight month, it indicated it would look through any weakness in the first-quarter GDP figures.
"Economic growth is still expected to increase gradually over the next couple of years to a little above 3 per cent ... despite quarter-to-quarter variation in the growth figures," the RBA said, a counter to some of the gloomier predictions on the figure made in recent days by private sector economists.
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