The Australian dollar slipped on Wednesday after data showed the economy shrank for the first time since 2011, raising the spectre of a possible recession following 25 years of growth. The Australian dollar fell to $0.7425, from $0.7460 early, pulling closer to a five-month trough of $0.7370 touched in November. Support was found around $0.7416.
It skidded around half a percent against its Kiwi cousin and the euro. The weakness came after gross domestic product (GDP) fell 0.5 percent in the third quarter versus forecasts of a 0.3 percent gain. Some economists think the setback is only temporary. "I see this as a one-off because some of the factors which dragged down growth in the September quarter were reversed in the current quarter," said Shane Oliver, chief economist at AMP Capital.
Interbank futures implied a probability of 24 percent for a cut by May, up from 14 percent on Tuesday. A falling Aussie dollar against its Kiwi neighbour supported the New Zealand dollar. It was steady at $0.7126, helped by another rise in dairy prices at a global auction overnight.
Resistance was found at $0.7170, with support at Monday's low of $0.7070. New Zealand government bonds were a shade firmer, with yields down 1 basis point at the long end. Australian government bond futures jumped on the soft GDP report, with the three-year bond contract up 5 ticks at 98.090. The 10-year contract rose 4 ticks to 97.2500, while the 20-year contract was steady near 96.5700.
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