- AUD/USD falls back down below 0.6500 after US Q1 GDP data reveals persistent price pressures.
- The pair reverses the strong rally that has characterized price action over the past week.
- The Fed is now seen not cutting interest rates till September whilst the consensus for the RBA is November.
AUD/USD trades back below 0.6500 on Thursday, after peaking at 0.6539 earlier in the day. The sudden decline comes after the release of US first quarter GDP data which showed persistent price pressures within the US economy despite an overall slowdown in economic growth.
US preliminary Gross Domestic Product Annualized rose 1.7% in Q1 which was below estimates of 2.5% and the previous quarter's 3.4% reading, according to data from the US Bureau of Economic Analysis, on Thursday.
Yet the US Dollar noted gains across the board following the data, as a key gauge of inflation in the GDP data – the preliminary Gross Domestic Product Price Index for Q1 – showed a rise of 3.1% in prices, which was substantially higher than the 1.7% of the previous quarter.
The GDP price index data suggests stubbornly high inflation in the US economy that will probably lead the Federal Reserve (Fed) to keep interest rates higher for longer. Higher interest rates are in turn positive for USD (negative for AUD/USD) since they attract great inflows of foreign capital.
In addition, the higher-than-expected Core Personal Consumption Expenditures in Q1, which is also a measure of inflation, showed a 3.7% rise QoQ compared to estimates of 3.4% and a previous reading of 2.0%.
After the release of the GDP data, a first interest-rate cut from the Federal Reserve is now not seen until September 2024, carrying a 58.2% probability.
Other relevant data for the US Dollar showed Initial Jobless Claims falling slightly to 207K from 212K when a rise to 214K had been expected, and Pending Home Sales coming in at 3.4% in March, easily beating estimates of 0.3% and February’s 1.6%.
AUD/USD rallied strongly on Wednesday following the release of stickier-than-expected Australian Consumer Price Index (CPI) data for Q1.
The CPI showed a 3.6% rise in Q1 instead of the 3.4% the market had expected. The price stickiness reflected in the data suggests the Reserve Bank of Australia (RBA) will be less likely to cut interest rates in the near-term.
The RBA is still seen as the last major G10 central bank to cut interest rates, according to analysts at Rabobank. A fact, that is providing a backdraught for AUD/USD.
The consensus is for the RBA to cut interest rates in November, however, some analysts, such as those at TD Securities have revised that view and now do not a first rate-cut until February 2025 .
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