Australian GDP beats estimate

The Australian dollar is trading quietly on Wednesday. Currently, AUD/USD is trading at 0.7378, up 0.09% on the day. The Aussie is closing in on the symbolic 0.74 level, after testing this line on Monday.

Q3 GDP stronger than expected

The Covid-19 pandemic took a bite out of global economic growth in the second quarter, with many major economies recording GDP declines in the double-digits. Australia’s economy was not hit quite that hard, but GDP did contract by 7.0%. The economy reversed directions in the third quarter, but the rebound was modest, with a gain of 3.3%, above the estimate of 2.5%. The gain was a reflection of stronger activity in the services sector, as lockdown regulations were relaxed and business activity was able to resume.

Australia’s economy appears on the road to recovery, but a full recovery from the downturn due to Covid will take some time. Economic growth is not expected to recover to pre-pandemic levels until late in 2021, which means that the RBA is likely to remain in ultra-accommodative mode until 2022 and perhaps longer. The good news for the Australian dollar is that the central bank appears to have shelved any plans for zero or negative rates, and has resorted to QE as an alternative monetary easing measure. The bank implemented QE for the first time at its November meeting, with purchases of A$100 billion in government bonds over the next six months. If economic growth is sluggish in the early part of 2021, the markets can expect the RBA to resort to an increase in QE and/or an expansionary fiscal policy in order to boost economic activity.

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AUD/USD Technical

AUD/USD continues to range-trade this week, as the weekly support and resistance lines remain intact

• AUD/USD faces resistance at 0.7485. Above, there is resistance at 0.7569
• We find support at 0.7301, followed by support at 0.7216
• The pair remains slightly above the 10-day MA line

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