The AUD/USD pair faced significant downward pressure on Wednesday following disappointing Australian GDP data for Q3, but the Australian dollar found support later in the day as the yuan strengthened. Without this lift, the Aussie could have sunk further, hitting its lowest levels in eight months.
Weak GDP Data Raises RBA Rate Cut Expectations
Australia’s Q3 GDP growth came in at just 0.8% year-over-year, the weakest figure in four years and below expectations of 1.1%. Quarterly growth was also underwhelming at 0.3%, missing the 0.5% forecast. These figures prompted interest rate traders to fully price in a 25-basis-point cut from the Reserve Bank of Australia (RBA) in April 2024, reducing the cash rate from 4.35% to 4.1%.
Further easing is anticipated with two more 25-basis-point cuts priced in for August 2025 and February 2026, which could bring the cash rate to 3.6%. The 2-year yield saw a sharp drop of 13 basis points, marking its worst day in nearly five months.
While the market expects RBA action, confirmation may hinge on January’s quarterly CPI figures, which will provide a clearer indication of whether rate cuts will commence in early 2024.
Yuan Strength Shields AUD/USD
Despite the bearish backdrop, the AUD/USD managed to recover around half of its losses, finding support at the 64-cent level. The rebound was largely attributed to strength in the Chinese yuan, as the USD/CNH pair moved lower from its July highs. The yuan’s performance has recently had a stronger influence on the Australian dollar than the AU-US yield differential.
Technical analysis suggests that while AUD/USD might hold above 64 cents for now, any breach of resistance in USD/CNH could push the Aussie toward its August low around 0.6350.
Outlook for December Trading
December is often characterized by erratic trading in the USD, which could translate to choppy price action for the AUD/USD pair. Traders may find opportunities on a daily basis rather than relying on sustained trends. Historically, the USD tends to weaken after December 20, potentially setting the stage for a cleaner bullish move in AUD/USD heading into the end of the year.
Key Economic Events to Watch
Upcoming events that could impact AUD/USD include:
- Australia: Trade balance data (11:30 AEDT)
- Japan: Tankan report, BOJ board member speech, 10-year JGB auction
- United States: Jobless claims, job cuts data, FOMC member Barkin’s speech
- Global: OPEC meeting and EU retail sales figures
Bottom Line
While weak GDP data has increased the likelihood of RBA rate cuts, the Australian dollar’s resilience is being buoyed by the yuan’s performance. Traders should stay cautious as December’s erratic trading patterns could present short-term opportunities, with a clearer direction potentially emerging after mid-month.
