AUD/CAD hits 1-week high as slowing GDP growth adds to RBA cut case

The AUD/CAD currency pair firmed to a one-week high on Wednesday, after data revealed below-forecast GDP growth in Australia and ahead of the outcome of the Bank of Canada’s March policy meeting.

Australia’s economy grew 0.2% quarter-on-quarter in Q4, following a revised up 0.3% growth in Q3 and below market consensus of 0.3%.

It has been the ninth straight quarter of growth, but at the slowest rate in 5 quarters amid subdued household spending.

The latter did not contribute to economic growth at all in the latest quarter, since a 0.7% increase in spending on essential items (electricity, rent, food and health) was offset by a 0.9% drop in discretionary spending.

Government spending slowed notably in Q4 (up 0.6% versus 1.5% rise in Q3), due to lower defense spending and continued government benefits for households.

On the other hand, net trade contributed positively to GDP growth, since exports of goods and services went down 0.3% and imports fell 3.4%.

In annual terms, Australia’s economy grew 1.5% in Q4, slowing down from a 2.1% expansion in Q3.

The GDP data reinforced the case for the Reserve Bank of Australia to begin reducing interest rates, after hiking borrowing costs by 425 basis points since May 2022.

Markets are currently pricing a rate cut by the RBA as early as August.

Meanwhile, the Bank of Canada is largely expected to hold the target for its overnight rate unchanged at a 22-year high of 5%.

Canada’s central bank forecasts headline inflation will remain stable near the 3% level during the first half of 2024, before decelerating to the 2% target in 2025.

Currency Pair Performance

As of 8:16 GMT on Wednesday the AUD/CAD currency pair was edging up 0.24% to trade at 0.8857.

Earlier in the session, the minor Forex pair went up as high as 0.8861. The latter has been the pair’s strongest level since February 26th (0.8870).