The Australian dollar came under a fresh wave of selling yesterday on news of weaker-than-expected economic growth in the first quarter, which reignited talk of further rate cuts this year.
Government figures showed gross domestic product grew by 0.6 per cent in the first quarter from the preceding three months, and 2.5 per cent from a year earlier. The increase extends 21 years of uninterrupted annual growth. Economists had expected a 0.7 per cent quarterly rise and a 2.7 per cent annualised increase.
A fast-cooling resources investment boom dragged on activity in the quarter, but economists said there were clear signs that the economy was finding alternative drivers of growth in the form of rising exports and stronger consumer spending.
Still, Wayne Swan said the transition from one driver of growth to the other would not be seamless, especially with the dollar still at historically high levels. "There is still some patchiness in parts of the economy. That's not surprising given the strength of the Australian dollar and the gradual transition towards non-mining sources of growth. This transition was never going to be seamless," the Treasurer said.
The currency was last buying US96.01c late yesterday compared with US96.80c late on Tuesday. It traded as low as US95.91c after the data. The dollar has fallen about 6 per cent since the start of last month amid talk the US was closer to scaling back economic stimulus, and signs China has slowed.
The soft reading on growth sparked talk that the central bank would need to cut interest rates again before the end of the year.
"Whichever direction you turn, the Australian dollar just looks like a sell at the moment. The underlying fundamentals look weak," said Stan Shamu, strategist at IG Markets.
"There are good reasons for the (RBA) to maintain an easing bias given the downside risks to domestic growth," said CommSec's Savanth Sebastian.
