The Australian Dollar (AUD) remained strong in the early Asian trading session on Wednesday, June 4, 2025, following the release of mixed economic data from Australia and continued weakness in the US Dollar (USD). Despite slower-than-expected GDP growth, the Aussie managed to maintain its gains, reflecting underlying investor confidence and global macroeconomic dynamics.
Australia’s GDP Slows But Remains Positive
Australia’s economy expanded by 0.2% in the first quarter of 2025, according to data released by the Australian Bureau of Statistics. Although this was a slowdown from the 0.6% growth in Q4 2024 and below the market expectation of 0.4%, the economy still showed resilience in the face of global headwinds.
On a year-over-year basis, GDP rose by 1.3%, slightly under the forecast of 1.5%. Analysts noted that while the figures point to a cooling economy, Australia is still managing to grow, which contrasts with stagnation fears in some other advanced economies.
PMI Figures Signal Modest Economic Expansion
Other economic indicators also reflected a cautious but steady pace of growth:
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The S&P Global Australia Composite PMI dipped to 50.5 in May, down from 51.0 in April. This marks the eighth consecutive month above 50, indicating expansion, although it represents the slowest growth rate so far in 2025.
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The Services PMI declined slightly to 50.6, its lowest reading in six months, suggesting that the service sector—Australia’s largest economic contributor—is growing, but at a much-reduced pace.
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In the manufacturing sector, the Ai Group Manufacturing PMI rose slightly to -23.5, up from -26.5 previously. While still in negative territory, the improvement indicates that manufacturing contraction is easing somewhat. Persistent challenges such as project delays, cost uncertainties, and cautious investment sentiment remain barriers to stronger recovery.
RBA Comments: External Risks Loom
Adding to the broader context, Reserve Bank of Australia (RBA) Assistant Governor Sarah Hunter commented on rising global risks, particularly the impact of increased US tariffs and trade policy uncertainty. She warned that these measures could dampen global trade, reduce investment, and hurt overall economic activity—which would likely have spillover effects on Australia.
However, Hunter also highlighted Australia’s relatively favorable position in the global economy. She emphasized that strong demand for key exports—especially from China—and resilient fiscal policy in Asia could help buffer some of these global risks. The RBA remains cautious but does not appear in a rush to change interest rates in the short term.
US Dollar Weakens Amid Trade War Jitters
The US Dollar Index (DXY), which tracks the USD against a basket of six major currencies, weakened to around 99.10 on Wednesday. This drop is driven primarily by concerns over rising US import tariffs and their potential impact on domestic growth. Traders are beginning to factor in the possibility of a slower US economy, prompting a retreat from the greenback.
This USD softness has provided a tailwind for the Australian Dollar, allowing it to maintain strength despite weaker domestic data.
AUD/USD Outlook: Holding Ground Above Support
At the time of writing, the AUD/USD pair remains in positive territory, trading above key technical support levels. Analysts suggest that as long as global risk sentiment doesn’t deteriorate sharply, and Chinese demand for Australian exports holds, the AUD could continue to find buyers.
Still, with softening economic indicators, any further data disappointment—particularly in labor or inflation reports—could renew concerns about the underlying momentum of the Australian economy.
Conclusion
The Australian Dollar’s strength following weaker GDP data reflects a complex balance of forces: relative domestic resilience, a weakening US Dollar, and a cautiously optimistic stance from the RBA. While not without risks, the AUD appears to be navigating the economic landscape with stability—for now.
