Hawkish Reserve Bank of Australia Comments Offset Impact From Weaker GDP, Says Mitsubishi UFG

07:11 AM EST, 12/03/2025 (MT Newswires) -- The main economic data release overnight Tuesday was the latest gross domestic product report from Australia, which revealed the economy expanded less than expected by 0.4% in Q3, MUFG noted.

It was partially offset by a 0.1 point upward revision to growth in Q2, up to 0.7%, and it helped to lift the annual rate of growth back up to around 2% in recent quarters, wrote the bank in a note to clients.

The Reserve Bank of Australia had been expecting growth of 0.5% in Q3.

MUFG noted the breakdown revealed that household spending added 0.3 percentage point to growth and government spending added 0.3 percentage point, while the biggest drag on growth was inventories subtracting 0.5 percentage point.

However, the softer GDP report hasn't discouraged the recent hawkish repricing of RBA rate expectations, stated MUFG. The Australian rate market has moved to almost fully price in a rate hike from the RBA in light of the tighter than expected labor market conditions and the pick up in inflation pressures.

Those expectations were encouraged overnight Tuesday by comments from RBA Governor Michele Bullock, who stated that the labor market is "a little tight," and the output gap has "probably closed."

The governor then signaled that persistent inflation will affect the future policy path. Finally, Bullock emphasized that the RBA is "alert to the possibility CPI pressures might be building," and "if CPI pressures build, the board will respond accordingly."

A development that would encourage a stronger Australian dollar (AUD), according to the bank.

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