04.06.202600:36 Forex Analysis & Reviews: AUD/USD: Bad News for the Australian Dollar

On Wednesday, the AUD/USD pair tested the lower boundary of the 0.7150 – 0.7200 price range (the Bollinger Bands indicator's upper and lower bands on the H4 timeframe), within which it has been trading for the second consecutive week. The pressure on the Aussie was exacerbated by the weak GDP growth data released during the Asian session on Wednesday. At the same time, Australian PMI indices and the Chinese Markit services sector activity index acted as a limiting factor for sellers, allowing buyers to keep the pair within the specified range.

And yet, the Australian dollar rang a "warning bell" on Wednesday: almost all components of the key macroeconomic release fell into the red zone and failed to meet expectations. In quarterly terms, GDP volume increased by only 0.3% in the first quarter of this year, while most analysts had forecast a more significant decline to 0.5% (after a 0.8% rise in the previous quarter). This is the weakest result since the first quarter of 2025. Year-on-year, the Australian economy grew by 2.5%, compared to a forecast of 2.7%. It's worth noting that the annual figure had shown an upward trend over the previous five quarters, reaching 2.6% year-on-year, but unexpectedly slowed at the beginning of the current year.

Not only were the "headline " figures disappointing, but the structural elements of the report also showed signs of deterioration across many key components of the economy.

The main issue lies in the quality of growth. Essentially, the Australian economy has been propped up by narrow and largely temporary factors. Specifically, a sharp surge in business investments in equipment was recorded in the first quarter (up to +16% in certain segments). Infrastructure and import-warehouse effects (inventory accumulation, capital-goods imports) also played a role.

At the same time, consumer activity is practically stagnant. Household spending growth was very weak (0.3%), with spending shifting towards essential goods (utilities, rent, food), while discretionary spending (restaurants, leisure, large appliances, and vehicles) plummeted sharply. This indicates a high cost of living and weak real income growth. High interest rates from the Reserve Bank and persistent inflationary pressure are forcing Australians to adopt strict saving measures.

Additional pressure on the report came from external sector dynamics: exports decreased by 1.1%, while imports increased sharply, primarily in equipment and energy-intensive categories. The contribution of net exports was negative, amounting to -0.8 percentage points. This is a critical point, as it signals that economic growth is largely "eaten up" by imports while foreign trade ceases to be a supportive factor and begins to exert a restraining influence.

It's also important to note another structural problem: the continued decline in labor productivity (-0.6%). This means that economic growth is becoming more "expensive": labor costs are rising faster than output (this, among other things, creates internal inflationary pressure).

And perhaps the key point is that formal GDP growth has not been accompanied by an improvement in the population's well-being: on a per capita basis, the Australian economy has been contracting for several consecutive quarters, and the first quarter of the current year is no exception. This means that the average Australian is effectively becoming poorer, and the standard of living is declining despite the nominal growth of the country's economy.

In other words, Australia is (for now) managing to avoid a technical recession; however, the economy's internal structure contains several alarming signals. Economic growth is partly artificial and unsustainable because its main driver is the public sector rather than private businesses or consumers. This trend raises the risks of further slowing growth rates in the second half of the current year.

All of this suggests that the Reserve Bank of Australia will maintain a wait-and-see position in the coming months, despite rising inflation.

In response to the weak GDP growth report, the AUD/USD pair tested the support level at 0.7150 (the lower line of the Bollinger Bands on the four-hour chart and simultaneously the Tenkan-sen line on the daily chart). The composite PMI index (from S&P Global) acted as a limiting factor, although it remained in contraction territory (48.7). Most analysts had predicted a more significant decline (to 47.2), so this figure came out in the green zone. The Australian dollar also received background support from Markit's Chinese services sector activity index, which surged to 54.4 (against a forecast increase to 52.3).

However, the AUD/USD pair remains under pressure amid disappointing data on Australian economic growth and rising geopolitical tensions. It is reasonable to consider short positions if sellers manage to push through the support level at 0.7150. The next targets for the downward movement are the levels 0.7120 and 0.7100 (the lower boundary of the Kumo cloud on the H4 chart and the lower line of the Bollinger Bands on the D1 chart).