Australia dollar drifts as economy slows, Gulf fighting resumes

SYDNEY: The Australian and New Zealand dollars dithered on Wednesday as fresh fighting broke out in the Gulf, while data showed Australia’s economy had been slowing even before rising interest rates and surging petrol prices hit demand.

The country’s gross domestic product grew 0.3% in the March quarter, down from a strong 0.9% the previous quarter, while annual growth held at 2.5%.

Business investment boomed in the quarter amid a splurge on data centres, though much of the equipment involved was imported and thus pulled down headline growth.

Strength in investment should lift output and productivity over time, and hopefully help restrain inflation.

The Reserve Bank of Australia actually wants to slow the economy to bring demand back into line with supply, and has raised interest rates three times this year in an effort to do just that.

“Labour market conditions remain relatively tight, while elevated crude oil prices continue to pose upside inflation risks,” noted Wee Khoon Chong, APAC macro Strategist at BNY.

“There is no room for complacency, and the risk is that the RBA hikes again if inflation expectations remain persistently high,” he added.

“AUD remains technically well supported, and we may be one or two positive macro data releases away from AUD re-testing the 2026 high.”

Markets had already given up on any chance of a hike at the RBA’s next meeting on June 16, but still imply a 50% chance of an August tightening. Investors assume one more move to 4.60% will likely be the end of the tightening cycle for now.

With the rate outlook little changed, the Aussie was left hostage to every new twist in the Gulf saga where markets were still hoping a deal would be done despite the latest fighting.

That left the Aussie flat at $0.7177, having edged up 0.3% overnight.

A break of resistance at $0.7200 would open the way to $0.7277, while support lies at $0.7135 and $0.7080.

It was aided by demand against a sliding yen, which propelled the Aussie to a 35-year peak of 114.80.

The kiwi dollar idled at $0.5933, after flatlining the previous session.

It faces major resistance at last week’s top of $0.5993, with support at $0.5911 and $0.5816.