Australian Dollar Slides After Disappointing Slowdown in Third Quarter Growth

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  • Australian Dollar Slumps as Third Quarter Gross Domestic Product Slows – Confidence in Australian economic outlook declines
  • Pound Benefits as Odds of No-Deal Brexit Diminish – Investors shrug off disappointing UK services PMI
  • Signs of Italian Resilience Boost Euro – Evidence still points towards weaker Eurozone growth
  • Bank of Canada Decision Leaves Canadian Dollar Under Pressure – BOC outlook appears less positive

Disappointing Growth Data Pushes Australian Dollar Lower

The third quarter Australian gross domestic product data fell short of expectations yesterday, with growth easing from 0.9% to 0.3% on the quarter. This unexpectedly sharp slowdown in growth left the Australian Dollar on the back foot. Weaker growth is likely to encourage the Reserve Bank of Australia (RBA) to leave interest rates on hold for longer, to the detriment of AUD exchange rates. Fresh signs of US belligerence on trade also prompted investors to sell out of risk-sensitive currencies.

A narrowing of October’s trade surplus could add to the bearish mood of the Australian Dollar today.

Pound Rises as Odds of No-Deal Brexit Fall

While Theresa May saw defeat in the House of Commons, losing three votes overnight, this failed to weigh down the Pound. Investors were instead encouraged by one of the successful amendments, which grants MPs greater power to avert the prospect of a no-deal Brexit. This prompted GBP exchange rates to rally, even as the UK services PMI proved significantly weaker than forecast. Although the service sector slowed to a state of near-stagnation in November this was not enough to limit demand for the Pound.

Developments in the ongoing parliamentary debate over Brexit could provoke further volatility for GBP exchange rates.

Stronger Italian Service Sector Encourages Euro

A surprise return to expansion for the Italian service sector offered a boost to the single currency, even as the Eurozone as a whole saw a continued slowdown on the month. With the Italian economy in a slightly healthier state of health than previously thought and as government officials signalled a willingness to compromise on the 2019 budget proposal demand for the Euro increased. Even so, the mixed nature of the latest Eurozone retail sales data helped to limit the upside potential of EUR exchange rates.

Another contraction in German factory orders would leave the Euro exposed to selling pressure this evening.

Worries Over US Protectionism Boost US Dollar

Trump’s latest comments on trade saw the US Dollar recover ground last night, with investors spooked by the persistent threat of fresh tariffs. This undermined recent optimism that the US and China could put their trade spat behind them, prompting a fresh bout of risk-off trading. USD exchange rates benefitted from this renewed sense of pessimism, even with US markets closed for the day.

Further volatility is likely in store for the US Dollar on the back of November’s ISM non-manufacturing composite index if the sector fails to show resilient growth on the month.

Steady Bank of Canada Weighs Down Canadian Dollar

Even though the Bank of Canada’s (BOC) decision to leave interest rates on hold was widely expected CAD exchange rates still slumped in the wake of the announcement. As the weakness of recent domestic data appears to have discouraged policymakers the mood towards the Canadian Dollar soured, with interest rates looking set to remain on hold for longer. Buoyant oil prices failed to offer the commodity-correlated Canadian Dollar any degree of support, meanwhile.

Any easing in the Ivey PMI for November could put further downside pressure on CAD exchange rates tonight.

Weaker Commodity Price Index Limits New Zealand Dollar Appeal

Another, albeit smaller, contraction in the ANZ commodity price index limited the appeal of the New Zealand Dollar yesterday. With prices continuing to weaken confidence in the outlook of the domestic economy diminished. The decline in general market risk appetite also weighed on NZD exchange rates, giving investors little reason to favour the ‘Kiwi’ over its rivals.

In the absence of any fresh domestic data the New Zealand Dollar is likely to remain under pressure over the course of the day.

Data Released

December 6th 11:30 AUD Trade Balance (OCT) 3 billion
December 6th 18:00 EUR German Factory Orders (YoY) (OCT) -3.1%
December 7th 02:00 CAD Ivey PMI (NOV) 
December 7th 02:00 USD ISM Non-Manufacturing Composite Index (NOV) 59

Post by TorFX

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