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AUD/USD Breaks Below 0.6500 After GDP Miss and US Data
Australian GDP slowed to 0.2% QoQ, reinforcing rate-cut speculation, while US ISM Services hit 54.5 with prices paid at 71.3. The pair targets 0.6420 support next.
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The Australian Dollar dropped through the 0.6500 support level on Wednesday after a disappointing third-quarter GDP print and a fresh round of firm US economic data. The move widened the rate differential in favour of the dollar and tested a zone that had held for three sessions earlier this month.
GDP Slowdown and the Real Yield Channel
Australia's economy expanded 0.2% quarter-on-quarter, down from 0.4% in the prior period. Weaker household consumption and a drag from net exports drove the miss. For the Reserve Bank of Australia, the data reduces the case for keeping rates at their current restrictive level. Markets now assign a higher probability to a rate cut in the first half of next year.
The simple interpretation is straightforward: a weaker economy means a weaker currency. The better market read runs through real yields. Australian real yields have compressed relative to US real yields since the GDP data released. When that spread narrows, the carry advantage that has supported AUD/USD erodes. That mechanism is the primary driver of the current decline, not a sudden shift in risk appetite or broad dollar strength alone.
US Services Data Tightens the Rate Differential
On the same session, the ISM Services index came in at 54.5, above the 53.8 consensus. The prices paid sub-index rose to 71.3, the highest reading since early this year. That print signals that service-sector inflation is not cooling at the same pace as goods-side inflation. The market response was a steepening of the US yield curve. The 2-year yield rose 6 basis points and the 10-year yield climbed 8 basis points.