Analysts are predicting an increase, though modest, for the first quarter of 2025. Most forecasts of economic growth for this quarter are around 0.4%, representing a very weak Australian economy growing at a crawl. This forecast means a dip from last quarter’s growth of 0.6%. The annualised GDP reading is expected to increase to 1.5%, from 1.3% in the third quarter of 2024.
The Australian Dollar (AUD) is trading in a very tight range against its American counterpart, as the world economic conditions continues to unfold. As Australia is rich in natural resources, the health of its largest trading partner, China, plays a crucial role in influencing its economic performance. Iron ore is by far Australia’s largest export commodity. For example, the recent shifts in demand coming from China can have immediate downstream affects on the worth of the Australian Dollar.
Current Economic Indicators and Forecasts
Our analysts have been tracking the early releases of 3rd quarter GDP, and many institutions have released their projections. Despite widespread optimism about growth potential, some have lowered their growth outlooks. At the same time, Westpac cut its Q1 2025 GDP forecast to 0.1% q/q and 1.2% y/y. This decision comes as a result of disappointing public demand indicators, net exports and intangible investments.
Third, public demand has been hit hard by the severe weather that has caused twice-as-large negative shocks to economic activity. Consequently, analysts are pointing out that growth is still weak compared to prior outlooks.
“We have downgraded our GDP forecast to 0.1% QoQ and 1.2% YoY in Q1 2025 following the latest batch of indicators. Public demand, net exports and investment in intangibles all disappointed. While some of the weakness reflects bigger than expected impacts from weather-related disruptions, it is undoubtedly the case that growth remains sluggish.” – Westpac
The analysts who haven’t downgraded their fortunes aren’t giving up on a rosier future. National Australia Bank (NAB) is anticipating growth remaining below trend for the foreseeable future. As global conditions normalize, it might increase to just over 2¼% by 2026.
“Overall, we see growth over 2025 remaining below trend despite the ongoing recovery before rising to around 2¼% over 2026. We see the largest risks to growth this year coming from a weaker global backdrop.” – National Australian Bank
Currency Performance and Global Influences
The AUD/USD currency pair has shown some consistent trading lately, moving in a fairly narrow range since the middle of May. At the moment, buys are lined up near the 0.6380/90 level and sells are limiting gains at just below the 0.6520 level. This range will surely be tested deeper as the GDP data drops in.
Valeria Bednarik, a market analyst, notes that an upbeat GDP reading could lead to increased value for the Australian Dollar. A strong beat would likely send the AUD/USD cross racing towards the 0.6530 area. If so, we could see additional advance that challenges the 0.6570 price level. On the flip side, support in the near term should be found at the 0.6400 level.
“An upbeat reading could push the AUD/USD pair towards the 0.6530 region, while further gains expose the 0.6570 price zone.” – Valeria Bednarik
The unpredictable state of the Australian Dollar is due in no small part to geopolitical instability and general world economic turmoil. Installations surged in early 2018 in advance of expected tariffs and recent announcements have led to temporary boosts in prices across financial markets. Major uncertainty remains about their long-term impact.
“Uncertainty in the world economy has increased over the past three months and volatility in financial markets rose sharply for a time.” – Source
Implications for Future Economic Policy
The Reserve Bank of Australia (RBA) has been actively monitoring these economic indicators as it considers its monetary policy approach. In fact, at its most recent meeting on May 20, the RBA debated a larger cut of 50 basis points. In the end, they chose to adopt a firmer stance. The official cash rate is now at 3.85%.
The RBA’s focus remains on balancing inflationary pressures while fostering economic growth, especially amid global uncertainties that could affect domestic consumption and investment.
By publishing minutes from their meetings two weeks after each interest rate decision, the RBA provides transparency regarding its deliberations and future policy directions. Analysts will be closely monitoring how these decisions stack up with the upcoming GDP estimates on Friday.