Australian Dollar: Strong GDP and carry support – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad notes AUD/USD fell toward 0.7125 on broad US Dollar (USD) strength, even as Australia’s Q2 GDP beat expectations at 0.4% q/q and 2.1% y/y. Haddad highlights robust household spending and rising Reserve Bank of Australia (RBA) hike odds, with futures now pricing higher tightening, supporting Australia’s attractive carry and commodity-linked tailwinds for the Australian Dollar (AUD).

Growth beat boosts RBA pricing

"AUD/USD dropped to a multi-day low near 0.7125 on broad USD strength. Australia Q2 real GDP growth overshot expectations."

"The economy increased 0.4% q/q (consensus: 0.3%) vs. 0.3% in Q1 to be up 2.1% y/y which is above the RBA’s forecast of 1.9% y/y."

"The details were good and points to resilient consumer spending activity. Household spending made the largest contribution to Q2 GDP growth (+0.2ppt) driven by vehicle purchases."

"RBA cash rate futures raised bets for additional hikes after the GDP release. Odds of a 25bps hike on September 29 jumped from 55% to nearly 80%, while markets moved closer to pricing 50bps of tightening over the next twelve months."

"Bottom line, Australia’s attractive carry alongside the country’s strategic exposure to commodities linked to energy, AI, and defense remain key AUD tailwinds."