As the release of the final partials yesterday warned, Australian Q1 2022 Australian GDP has beaten expectations, rising by a solid 0.8% QoQ and 3.3% YoY, despite the impact of Omicron and the devastating rains and floods that hit the East Coast.
Within the details, Australia's Terms of Trade rose 5.9%, with export (+9.6%) and import prices (+3.5%) up strongly. Rises in energy-related export prices drove the gains.
Domestic final demand contributed 1.6% to GDP growth. Household final consumption expenditure contributed 0.8%. Government consumption contributed 0.6%, driven by increased health expenditure. The government's response to the floods in NSW and QLD also contributed to the rise.
Net trade was the main drag falling by 1.7%, driven by the most robust rise in imports since the December quarter of 2009. The increase in imports reflected delayed shipments' arrival and rebuilding inventory by businesses closer to pre-pandemic levels.
Changes in inventories contributed 1% and partly offset the detraction from imports and likely reflect rebuilding from depressed Covid-19 levels and strong demand.
The household saving ratio declined from 13.4% to 11.4%, remaining above pre-pandemic levels but a long way from the 19.8% level it reached in Q3 2021. The fall in the savings rate as consumers continue to open their wallets and shop up a storm and the rising cost of living.
Given the continued surge in energy prices and the Terms of Trade, and the fact that growth has remained resilient in the face of firm headwinds, it should be enough to see the RBA hike rates by 40 bp next week to 0.75%.
To take advantage of the factors outlined above and to take the choppy U.S dollar out of the equation, we favour buying AUDNZD here around the 1.1015 area, with a stop loss placed at 1.0915. The target for the trade would be 1.1170/1.1200.
Source Tradingview. The figures stated are as of May 1st of June 2022. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
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