Australia’s economy grew by 0.6% quarter-on-quarter (QoQ) in the fourth quarter (Q4) of 2024, surpassing analysts’ expectations of 0.5%, according to data released by the Australian Bureau of Statistics (ABS) on Wednesday. This marks an improvement from the 0.3% growth recorded in the third quarter (Q3). Year-on-year (YoY), the economy expanded by 1.3%, exceeding the forecasted 1.2% increase and a notable rise from the 0.8% growth in Q3.
Key Highlights from Australia’s GDP Report
- Nominal GDP rose by 1.6%.
- Terms of Trade increased by 1.7%.
- Household Saving to Income Ratio climbed to 3.8%, up from 3.6% in the previous quarter.
Market Reaction to the GDP Data
Despite the positive GDP results, the Australian Dollar (AUD) showed limited movement. The AUD/USD currency pair was trading at 0.6258, up just 0.12% on the day. This muted response reflects a broader context where global market dynamics and risk sentiment have had a more significant impact on the currency than the GDP figures themselves.
Economic Context and Expectations for Q4 GDP
In the lead-up to the release, economists had anticipated moderate growth for Australia’s economy in the last quarter of 2024, with a forecasted 0.5% QoQ increase, improving from the 0.3% posted in Q3. Annual growth was expected to reach 1.2%, up from 0.8% in the previous quarter.
The economy’s slow progress during 2024 can largely be attributed to the Reserve Bank of Australia’s (RBA) decision to maintain interest rates at multi-decade highs in an effort to curb persistent inflation. The RBA kept the official cash rate (OCR) at 4.35% for most of the year before delivering a modest rate cut to 4.1% in February 2025. This cautious approach indicates that the central bank’s tightening cycle may be nearing its peak, although the effects of the high rates continue to weigh on economic activity.
Impact of Interest Rate Policies and Consumer Behavior
The high interest rates have led to a prolonged period of restricted household spending, which has affected real GDP per capita, which fell for seven consecutive quarters through Q3 2024. However, analysts remain optimistic that the RBA’s recent rate cut signals the start of a more accommodative policy that could stabilize growth in the coming months.
Despite the rate cut, the RBA remains cautious. Recent meeting minutes indicated that the central bank is wary of further loosening monetary policy until inflation trends more firmly within its target range. As a result, while economic conditions may improve gradually, the path to recovery may be slow.
Analysts’ Forecasts and Market Sentiment
Ahead of the GDP data release, several financial institutions adjusted their forecasts. Westpac Banking Corporation revised its GDP growth forecast upward, expecting a 0.7% increase in Q4, citing stronger-than-expected business inventory data and weaker-than-anticipated import growth. Conversely, National Australia Bank (NAB) maintained its forecast for 0.5% QoQ and 1.2% YoY growth, projecting that economic growth would improve further in 2025, with H2 2024 marking the low point in the cycle.
How the GDP Data Could Affect the Australian Dollar
The release of GDP data typically has a significant impact on the Australian Dollar (AUD), as it is closely tied to market sentiment and economic health. The market’s reaction to the data, however, has been muted thus far, with the AUD/USD pair struggling to break away from its recent trading range.
Analysts, including Valeria Bednarik of FXStreet, note that the AUD/USD pair is currently caught between USD weakness and a risk-averse market environment. Should the GDP data exceed expectations, the Australian Dollar could see an uptick, with potential resistance levels at 0.6300 and 0.6330. On the other hand, disappointing results could drive the AUD/USD pair lower, potentially towards 0.6100-0.6130, especially if global risk sentiment remains negative.
Conclusion
Australia’s economic performance in Q4 2024 outperformed expectations, but the immediate market response has been muted. With the AUD/USD trading in a tight range, traders will be watching closely for any signs of stronger-than-expected growth that could provide upward momentum for the Australian Dollar. The broader economic outlook suggests that while interest rate cuts may provide some relief, the path to sustained growth remains fraught with challenges. Investors will likely continue to monitor the RBA’s next moves and global economic developments to gauge the future direction of the AUD.
Related topics:
Weekly Roundup: Key Developments in the FX and CFDs Industry
Bangladesh Implements New Forex Strategy to Stabilize Taka: Analysts Weigh In
