Fundamental Comment

Australian dollar drops from record high after dismal GDP figures

Australian dollar drops from record high after dismal GDP figures

The Australian dollar dropped for a second straight session versus the U.S. dollar, easing from its highest level since May 2018, after a report showing the Australian economy posted its sharpest contraction on records in the second quarter.

GDP figures released on Wednesday showed that the economy contracted 7 percent, following a fall of 0.3 percent in the first quarter. Analysts had predicted a contraction of 6.0 percent.

The sharp fall is considered the worst since first compiling data in 1959, as the coronavirus hit the Australian economy and its main trading partner China, where the economy is currently deemed in a technical recession after contracting for two consecutive quarters.

Meanwhile, the Australian dollar is trading lower against its U.S. counterpart at 0.7353, while it hit a low of 0.7336.

On the other hand, the dollar index resumed recovery after erasing its losses yesterday, following an upbeat report showing that U.S. manufacturing expanded at the fastest pace since 2018 in August.

The dollar index has come under tense pressure after Fed Chair Jerome Powell vowed to keep the loose monetary policy even if inflation surpassed the central bank’s objective.  

Later in the day, eyes will focus on U.S. ADP non-farm employment and factory orders, while the key focus will be on Friday’s NFP data for August.

Australia’s S&P/ASX 200 index, however, edged up 1.8 percent to 6,063.20, marking its largest one-day percentage rise since August.  

Investors focused on the positive signs of global economic recovery after the release of sanguine manufacturing data from both U.S. and China on Tuesday.

Last night, Wall Street finished at new record highs, led by sharp gains from technology shares.

Adding to positivity in the sentiment, US Dr Anthony Fauci mentioned that the Covid-19 vaccine could be available at an earlier date if clinical trials were overwhelmingly positive.

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