AUD/USD falls as Australia economy enters technical recession

The AUD/USD pair declined in early trading as investors reacted to the stronger US dollar and the Australian GDP data. The pair is trading at 0.7350, which is lower than yesterday’s high of 0.7413.

Australia GDP contracts in second quarter

Like all countries, the Australian economy has been affected by the coronavirus pandemic. According to the Australian Bureau of Statistics (ABS), the economy contracted by 7% in the second quarter. That followed a 0.3% decline in the first quarter, meaning that the country is in a technical recession. Analysts polled by Reuters were expecting the economy to contract by 6%. The GDP contracted by 5.3% on a year-on-year basis.

According to the bureau, this contraction was because of the COVID-19 pandemic and the social-distancing measures by the government. At the same time, the government’s response to the pandemic helped the country avoid a deeper recession. For example, the government provided billions of dollars to support businesses.

The contraction was mostly because of a 7.9% decline in private demand. This decline was due to a 12.9% decline in household final consumption expenditure and a 17.6% decline in services spending. The latter was mostly because of the lockdown measures that affected non-essential businesses.

Imports fell by 2.4% during the quarter, driven by a 50.5% decline in services. At the same time, exports of goods declined by 18.4%. Meanwhile, the government net saving declined to $82.6 million.

The Australia GDP data came a day after the Reserve Bank of Australia (RBA) released its interest rate decision. In it, the bank left rates unchanged and warned of the rising risks of the second wave of the virus. As a result, it expanded the term loan financing to $200 billion, with the goal of supporting businesses.

At the same time, while the contraction of Australia’s GDP was bad, it was better than that of its peer countries. For example, the American economy contracted by 32.5% in the quarter while the UK contracted by 20%. At the same time, the Eurozone economy weakened by almost 12%. Only China did better as its economy expanded by 3.2%.

AUD/USD technical outlook

The AUD/USD pair is trading at 0.7350, which is slightly lower than yesterday’s high of 0.7420. On the daily chart, the price is above the 50-day and 100-day exponential moving averages. The price is also slightly above the important level of 0.7040, which was the highest point this year. The Average Directional Index has also risen. Therefore, in the near term, the pair is likely to continue falling as bears attempt to test the important support at 0.7040.