AUD/USD rallied to near 0.6600 as Q3 GDP data, though weaker than expected, confirmed strong private investment and household demand, supporting the RBA’s on-hold stance. With Australian rates expected to stay firm while the Fed faces 100bps of easing, AUD/USD could trend toward 0.6700, reflecting widening one-year implied policy rate differentials, BBH FX analysts report.

Australia Q3 GDP underwhelms, but domestic demand strong

"AUD/USD rallied to a multi-week high near 0.6600. Australia Q3 real GDP growth underwhelmed but details are more reassuring and back the RBA’s on hold bias. Real GDP rose 0.4% q/q vs. 0.7% in Q2. This was weaker than the consensus (0.7%) and the RBA’s projection (0.5%). On a year-over-year basis, real GDP was 2.1% vs. 2.0% in Q2. That is largely in line with the RBA’s Q4 projection of 2% and signals firmer underlying capacity pressures."

"Over Q3, inventories destocking was the biggest drag to growth (-0.5pts) and masks healthier private domestic demand underneath. Private investment contributed 0.5pts to GDP growth reflecting the ongoing expansions of data centers, while household expenditure added 0.3pts to GDP growth driven by essential spending."

"The swaps curve is betting on RBA rate hikes over the next year, in sharp contrast to the 100bps of easing priced for the Fed. As such, AUD/USD has scope to converge with one-year implied policy rate differentials and trade closer to 0.6700."