Aussie GDP-Led Rise Capped as Concerns Remain Over Weak Momentum

  • Day traders wrong-footed by RBA’s comment on Tuesday: traders
  • USD recovers against rest of G-10 ahead of events Thursday

The Australian dollar rose after first-quarter economic growth met expectations, soothing concerns of a deeper slowdown signaled by the Reserve Bank of Australia. 

The year-on-year Australian growth figure of 1.7 percent wrong-footed some investors who had taken short positions on the Aussie after the central bank said Tuesday that growth slowed in the March quarter, according to traders who asked not to be identified as they aren’t authorized to speak publicly. Gains in the currency were capped as the data showed growth at its slowest since 2009. Australian bond yields also rose.

“The GDP data is also tracking below the RBA’s forecast and looking ahead, there is arguably more of the cyclone and flood impact to be felt in 2Q,” said Peter Dragicevich, FX strategist at Nomura Singapore Ltd. The backdrop of lower iron ore prices, lack of inflation pressure and narrowing interest rate spreads remains, which should limit upside in the Aussie, he added.

The greenback pared recent losses against the rest of the Group-of-10 currencies as investors await potentially market-moving events Thursday including testimony from former FBI Director James Comey, the ECB’s policy decision and the U.K. election.

  • AUD/USD rises as much as 0.5% to 0.7544; yield for 3-year bonds gains 5 bps to 1.69%
    • 3/10 Aussie futures curve flattens in response to 1Q seasonally adjusted GDP growth, now back to lowest since November
    • The Aussie has risen past its 200-day moving average of 0.7529, which will act as a support going forward, said Richard Grace, a currency strategist at Commonwealth Bank of Australia. 
    • “The next 48 hours promise to offer factors that will generate a test of that support as global equity and commodity prices react to the events of former FBI director James Comey’s testimony, the results of the U.K. election and the outcome of the ECB monetary policy meeting,” he said. 
  • USD/JPY rises 0.1% to 109.50
    • Short-term accounts bought dollar against yen to take profit, traders say
    • “Japanese importers may have bought at the local fixing to lift USD/JPY slightly as the dollar was below 110 yen,” says Kyosuke Suzuki, head of FX and money market sales department at Societe Generale in Tokyo
      • In general, market is taking a wait-and-see stance ahead of the U.K. election, the ECB meeting and Comey’s testimony, he says
  • Bloomberg spot dollar index up 0.1% to 1,191.17
    • Yield for 10-year Treasuries rises ~1bp to 2.15%
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