Australia Gross Domestic Product set to show a modest uptick in the last quarter of 2024

• Australian Gross Domestic Product is foreseen at 0.5% in the last quarter of 2024.
• The Reserve Bank of Australia hinted at a cautious approach to interest rate cuts. 
• The Australian Dollar could run towards 0.6300 vs the USD on an upbeat GDP report. 

The Australian Gross Domestic Product (GDP) will be out early on Wednesday. The fourth quarter (Q4) figures released by the Australian Bureau of Statistics (ABS) are expected to show that the economy made modest progress in the last three months of 2024. The quarter-on-quarter (QoQ) GDP is foreseen at 0.5%, improving from the 0.3% posted in the previous quarter, while the annualised reading is foreseen at 1.2% after posting 0.8% in Q3.

Slow progress in Australia is partially due to the Reserve Bank of Australia (RBA), as the central bank decided to maintain interest rates on hold at multi-decade highs throughout 2024 to fight stubbornly high inflation. 

What to expect from the Q4 GDP report

As said, the Australian economy is expected to have posted a modest 1.2% annualised growth in the last quarter of 2024. GDP data tends to impact significantly the local currency, in this case, the Australian Dollar (AUD).

However, financial markets may take the figures with a pinch of salt. Indeed, record interest rates have weighed on economic developments, yet the RBA finally delivered an interest rate cut in its early February meeting. The Official Cash Rate (OCR) now stands at 4.1%, down 25 basis points (bps) from 4.35%, which means the impact of higher interest rates should start to recede. It will be a long process, but at least the Board took a first step, boosting investors' hopes.

With time, rate reductions should help stabilise growth around long-term trends while keeping inflation within target. It is worth noting that real GDP per capita fell for seven consecutive quarters as of Q3 2024, driven by restricted household spending amid higher rates. 

Meanwhile, it is also worth remembering that the RBA has had a cautious approach to interest rate cuts. The recently released Minutes showed the Board "was not yet assured" inflation could be returned to the target range with a lower OCR. "As a result, members expressed caution about the prospect of further policy easing, which could also be seen in the forecast for inflation based on the market path," the document reads. 

Ahead of the announcement, analysts from the Westpac Banking Corporations noted:  "We have upgraded our forecast of economic growth following the latest batch of partial activity indicators in the run-up to Q4 GDP, due tomorrow. We now expect the economy grew by 0.7% in Q4, up from our initial estimate of 0.4% in our preview last week. The upside surprise on business inventories was met with a lower-than-anticipated growth in imports, albeit with some of the latter pointing to slightly softer domestic demand." 

At the same time, the National Australian Bank (NAB) expects a GDP print of 0.5% QoQ and 1.2% YoY. "We continue to expect GDP growth to strengthen over 2025 making H2 2024 the low point in growth for the cycle."

How can the GDP report affect the Australian Dollar?

The GDP report will be released on Wednesday at 00:30 GMT. Ahead of the release, the Australian Dollar (AUD) struggles to advance against its American rival. The US Dollar (USD) is under selling pressure amid fresh fears of a United States (US) economic slowdown following US President Donald Trump's decision to go on with tariffs on Canada, Mexico and China. At the same time, a risk-averse environment weighs on the Aussie, leaving the AUD/USD pair within familiar levels.

Generally speaking, upbeat figures should boost the AUD, while a slide should be expected if numbers miss expectations. 

Valeria Bednarik, Chief Analyst at FXStreet, notes: "The AUD/USD pair trades just above the 0.6200 mark ahead of the announcement, trapped between USD broad weakness and risk aversion. The daily chart suggests bears retain control, albeit slides towards the 0.6200 figure are attracting buyers. The intraday low following Trump's levies was set at 0.6201. The latter could give up on a discouraging GDP outcome and result in a slide towards the 0.6100-0.6130 region, as the dismal mood will add to the bearish case."

Bednarik adds: "Stronger-than-anticipated Australian growth could help AUD/USD run past 0.6253, the weekly high, and reach the 0.6300 threshold. Beyond the latter, resistance comes at 0.6330 and 0.6370."