Australia’s economy expanded 0.4% in Q3, below the RBA’s 0.5% forecast, though Q2 growth was revised up to 0.7%, keeping the annual pace near 2%. RBA Governor Bullock highlighted a tight labor market and a closed output gap, signaling that persistent inflation pressures could prompt further policy action, supporting expectations for a potential rate hike, MUFG’s FX analyst Lee Hardman reports.
RBA rate expectations remain hawkish despite softer GDP
“The main economic data release overnight was the latest GDP report from Australia, which revealed the economy expanded less than expected by 0.4% in Q3. It was partially offset by a 0.1 point upward revision to growth in Q2 up to 0.7%. It has helped to lift the annual rate of growth back up to around 2% in recent quarters. The RBA had been expecting growth of 0.5% in Q3.”
“The softer GDP report has not discouraged the recent hawkish repricing of RBA rate expectations. The Australian rate market has moved to almost fully price in a rate hike from the RBA in light of the tighter than expected labor market conditions and the pick-up in inflation pressures. Those expectations were encouraged overnight by comments from RBA Governor Bullock who stated that the labor market is ‘a little tight’, and the output gap has ‘probably closed’.”
“She then signaled that persistent inflation will affect the future policy path. Finally, she emphasized that the RBA is ‘alert to the possibility CPI pressures might be building’, and ‘if CPI pressures build, the board will respond accordingly’. A development that would encourage a stronger Australian Dollar (AUD).”
Source: https://www.fxstreet.com/news/aud-australia-q3-gdp-comes-slightly-below-forecast-mufg-202512031249
