Australian Dollar Soars as Q2 GDP, Chinese PMI Top Expectations

The Australian Dollar surged against all of its major counterparts after second-quarter Gross Domestic Product figures showed the economy added 1.2 percent in the three months through June, topping economists' forecasts calling for a 0.9 percent increase and marking the largest increase in three years.

The currency was already on its way higher ahead of the GDP report after Chinese Manufacturing PMI figures showed growth in the East Asian giant's industrial sector accelerated for the first time in three months in August. The outcome was interpreted as supportive for Australia via export demand considering China is the world's largest consumer of the antipodean nation's mining goods as well as for overall risk appetite given China's central role as a driver of global growth in the aftermath of the 2008 Great Recession.

Australian Dollar Trade-Weighted Index Spot (1min chart)

Looking ahead however, overnight gains don't seem to have much scope for longer-term follow-through. Indeed, the Chinese PMI gauge remains in a downtrend in place since the metric topped out in December 2009, with today's result coming nowhere near violating that trajectory. Furthermore, the Australian GDP result has done nothing for RBA rate hike expectations, with a Credit Suisse index tracking priced-in policy changes still pointing to toward a static posture for the year ahead. Meanwhile, signs of a broad-based slowdown in global growth abound, with JPMorgan's Global PMI down to a 5-month low in July while the Baltic Dry Index - a gauge of international trade activity - slid to the lowest since April 2009 over the same period. On balance, this hints that the path of least resistance points toward continued risk aversion, an outcome that bodes ill for the carry-linked Australian Dollar. We remain short AUDUSD.