- Australian Dollar (AUD) supported after GDP contracted -0.3% in Q1 vs. -0.4% forecast
- Chinese service sector activity at highest level in 10 years
- Safe haven US Dollar (USD) under pressure after ADP payrolls -2.76 million vs -9 million expected
- At 14:00 UTC, AUD/USD is trading -0.1% off session lows at US$0.6882
The Australian Dollar peaked at a fresh 5 month high of US$0.6983 in the Asian session before slipping lower to a nadir of US$0.6857.
At 14:00 UTC, AUD/USD has picked up off session lows and is trading -0.1% at US$0.6882 following better than forecast US ADP payroll data and better than expected Australian GDP data.
The latest GDP figures released by the Australian Bureau of Statistics revealed that the Australian economy contracted for the first time in 9 years in the first three months of 2020. The Australian economy on track for its first technical recession in 28 years.
The headline GDP fell -0.3% in Q1, better than the -0.4% forecast. The more upbeat reading supports Reserve Bank of Australia’s Governor Dr Philip Lowe’s belief that the coronavirus downturn will be less severe than originally expected.
That said, the worst is set to come in the second quarter of the year. The current months have seen a greater fallout from the coronavirus lockdown.
Also underpinning the Australian Dollar has been the economic recovery in China, Australia’s largest trading partner. Australia is considered the liquid proxy for China. Data showed that the Chinese service sector rebounded back into expansion territory in May, for the first time since January. The PMI rebounded to 55 in May, its highest level in a decade, up from 44 in April, as the economy continues to recover from the coronavirus lockdown.
Looking ahead investors will focus on Australian trade data and retail sales data due for release on Thursday in the Asian session.
The safe haven US Dollar was trading broadly lower versus its peers amid growing optimism following upbeat ADP private payroll data. The ADP payroll report showed that 2.76 million private sector jobs were lost in May. Whilst this is an incredibly high number, it is significantly short of the 9 million that analysts had pencilled in. It is also well below the 25 million fall that was reported in April.
The ADP report is considered a key lead indicator for the non-farm payroll report released on Friday.
Optimism surrounding the reopening of economies across the globe was already keeping the US Dollar under pressure. Signs that the US economy could be in a better place than expected is booting risk sentiment further.
