Investing.com– The Australian dollar weakened sharply on Wednesday after worse-than-expected gross domestic product data spurred higher bets that the Reserve Bank will cut interest rates in early 2025.
The pair fell 1.1% to $0.6411 at 10:30 PM ET (03:30 GMT).
The third quarter grew 0.8% year-on-year, missing expectations of 1.1% and slowing down from the 1% seen in the previous quarter.
rebounded to 0.3%, but missed expectations of 0.5% and also fell below the RBA’s 0.5% forecast.
The softer reading was mainly driven by weak private spending, as persistent inflation and high mortgage rates eroded consumer appetite. Soft commodity export prices also weighed as foreign demand, especially in China, remained weak.
The reading sparked speculation that the RBA will be forced to ease its policy sooner rather than later, especially as GDP missed its forecasts.
“The release of another quarter of tepid AU GDP has resulted in the Australian interest rate market forwarding a first 25bp RBA rate cut in April since May,” wrote Tony Sycamore, market analyst at IG in a social media post.
The GDP data undercuts recent signals from RBA members that the central bank will keep interest rates high for longer, especially amid recent signs of sticky core inflation.
October data showed core inflation was still comfortably above the RBA’s target range of 2% to 3%, with the bank only forecasting inflation would fall sustainably within its 2026 target.
While the central bank has stated that cooling inflation is its top priority, weakening economic conditions in the country may prompt early rate cuts.
ANZ and Westpac expect the RBA to begin cutting rates in May 2025 in a mild easing cycle.
Capital Economics said in a note Wednesday that the bank “will begin a short easing cycle in the second quarter of next year.”