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    Aussie at fresh 6-year low after Australian GDP slows more than expected

    GDP growth in Australia slowed to the lowest level since 2013 in the second quarter of the year as China’s economic woes appeared to be putting a strain on the Australian economy. Second quarter growth was up 0.2% from the previous quarter, below estimates that it would expand by 0.5%. This compares with an unusually robust first quarter when the economy grew by 0.9%. Compared with a year earlier, GDP was up 2.0%.

    As expected, the main downward effect on GDP were lower exports, which were down by 3.3% over the quarter. Imports were also down but by not as much, with net exports contributing to a 0.6% deduction from GDP growth. Mining and construction also weighed on growth. Mining production contracted by 3.0% over the quarter as weak iron ore prices continued to take a hit on Australia’s mining industry.

    Positive contribution to growth came from higher household consumption, which was up 0.5%. Government spending was also strong, growing by 2.2% over the quarter and which potentially aided in keeping growth in positive territory during the quarter.

    The GDP data was mostly in line with the Reserve Bank of Australia’s (RBA) own forecast of 0.25% growth so the central bank won’t be rushing to cut rates just yet. But a further deterioration in China’s and other emerging market economies could prompt the RBA to cut rates for a third time this year. The recent market volatility in equity and currency markets pose additional downside risks.

    The RBA will have to weigh the strength of the domestic economy, with healthy consumer spending and booming property market, against the sliding Australian dollar and external risks in deciding whether to make further cuts to its cash rate. But with rates at 2%, the RBA has more scope than most other developed nations to ease monetary policy in the event of new shocks to the economy.

    The Australian dollar tumbled to a new 6-year low of 0.6981 against the US dollar after the GDP numbers came out. It has since rebounded slightly to around 0.70, though it is still down by 4.3% over the past month. Against the New Zealand dollar, the aussie was down on the day at 1.1057.

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