AUD/USD and USD/CAD: both face decline amid economic data

Key points

• AUD/USD falls below 0.6400 due to weak economic growth figures and potential RBA dovish stance
• Australian GDP increases only 0.3% quarterly and 0.8% annually, missing forecasts
• RBA maintains cash rate at 4.35% but future rate cut likelihood rises
• USD/CAD drops below 1.4100 as Canadian unemployment rises to 6.8%
• Bank of Canada recent 50bps rate cut follows slowing inflation data

AUD/USD falls below 0.6400

The Australian dollar fell to around $0.63759, nearing a four-month low, due to weaker-than-expected economic growth figures. This data has increased speculation that the Reserve Bank of Australia might adopt a more dovish approach in its upcoming policy meeting, weakening investor perspectives on the aussie. Additionally, the Aussie dollar has been pressured by concerns over China's economic issues and tariff threats from US President-elect Donald Trump, as it is often used as a proxy for the yuan.

AUD/USD price history

USD/CAD decreases below 1.4100 per USD

In December, the Canadian dollar fell to 1.41487 per USD, reaching its lowest point since April 2020. This decline followed weaker-than-expected labor market data, which investors assessed ahead of the upcoming interest rate decision. Bearish sentiment was further fueled by Trump's tariff threats, impacting Canada due to its dependency on U.S. demand for energy and automotive products.

USD/CAD price history

Aussie dollar slumps after weak GDP and unchanged interest rates

Australia's GDP rose by only 0.3% in the third quarter, missing its forecast of 0.4%, and grew by 0.8% annually, below its forecast of 1.1%, a contraction that has sparked fear of recession. In its most recent meeting, the Reserve Bank of Australia (RBA) maintained the cash rate at 4.35% for the eighth time in a row, aligning with market expectations. The RBA declared that while headline inflation has dropped and is anticipated to stay low, underlying inflation remains high, inspiring caution regarding inflation risks. Regarding future monetary policy, the RBA emphasized the need for it to remain restrictive until there's confidence that inflation can align with its target range. While the RBA is expected to keep interest rates steady in December, the probability of a rate cut in February has risen, though market pricing suggests a cut might not happen until May.

Canadian dollar contracts after interest rate cuts and rising unemployment

In November, the unemployment rate in Canada climbed to 6.8%, exceeding the forecasted 6.6% and reaching its highest level since September 2021. This rise aligns with the Bank of Canada's concerns about a deteriorating labor market and heightens the chances of a 50bps rate cut. In October 2024, the Bank of Canada had already reduced its key interest rate by 50bps to 3.75%, as anticipated, and hinted at further cuts if economic conditions align with expectations. This decision marked an acceleration in rate reductions following three previous 25bps cuts, in response to recent data showing a significant slowdown in Canadian inflation.

What’s next for AUD/USD and USD/CAD?

The outlook for AUD/USD appears bearish as the Australian dollar recently dipped below 0.6400, largely driven by weaker-than-expected economic growth figures and the potential for a dovish shift by the Reserve Bank of Australia (RBA). The GDP increased only by 0.3% quarterly and 0.8% annually, both missing forecasts, which has sparked recession fears and contributed to the Aussie dollar's decline. Although the RBA maintained the cash rate at 4.35%, its focus on underlying inflation risks indicates that monetary policy will remain restrictive until inflation aligns with target ranges. While interest rates are expected to remain unchanged in December, the likelihood of a rate cut in early 2024 is growing, potentially weakening the currency further. Additionally, concerns over China's economic challenges and tariff threats from the U.S., given the Australian dollar's role as a proxy for the yuan, may continue to add to the pressure.

For USD/CAD, the Canadian dollar's drop below 1.4100 against the USD is attributed to weaker labor market data and ongoing bearish sentiment about Canada's economic prospects, fueling the likelihood of further rate cuts following the Bank of Canada's recent 50bps reduction. The potential for additional rate cuts, alongside economic dependencies on U.S. demand for energy and automotive products, exacerbates the currency's weakness. Furthermore, tariff threats from Trump also contribute to negative sentiment, as they could disrupt Canada's trade dynamics and economic growth outlook.

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