Australia GDP expected to show soft growth in Q2

• Australian Gross Domestic Product is forecast at 0.5% in the second quarter of 2025.
• The Reserve Bank of Australia reduced the Official Cash Rate to 3.60% in its August meeting.
• The Australian Dollar trades with a soft tone a handful of pips above the 0.6500 mark.

Australia will release its second-quarter (Q2) Gross Domestic Product (GDP) on Wednesday, with financial markets anticipating growth ahead of the announcement. The Australian Bureau of Statistics (ABS) is expected to report that the economy made modest progress in the three months to June 2025. The quarter-on-quarter (QoQ) GDP is foreseen at 0.5%, improving from the 0.2% posted in the previous quarter, while the annualised reading is foreseen at 1.6% after posting 1.3% in the first quarter of the year.

The Australian Dollar (AUD) heads into the release with a soft tone amid broad US Dollar (USD) demand, the latter triggered by a sell-off in United Kingdom (UK) government bonds. The yield on the 30-year note climbed to 5.66% in the European morning, its highest since 1998. The risk-averse environment weighs on the AUD and partially overshadows the impact of data releases.

What to expect from the Q2 GDP report

Australian growth picked up modestly at the end of 2024 and remained stable in the three months to March 2025, with the annualized GDP steady at 1.3% in the previous two quarters.

In the meantime, the Reserve Bank of Australia (RBA) contributed to economic progress by trimming the Official Cash Rate (OCR) in February 2025. It was the first rate cut in four years. Given that the central bank has been utterly cautious in lowering interest rates, the impact of this year's decision is yet to be seen. The RBA has delivered three 25-basis-point (bps) rate cuts so far this year, the latest being in August.

Back then, policymakers noted that inflation had fallen substantially since the peak in 2022, "as higher interest rates have been working to bring aggregate demand and potential supply closer towards balance." At the same time, however, the RBA downgraded its full-year GDP forecasts for 2025 to 1.7% from 2.1%.

The statement released by the Board also reads: "Uncertainty in the world economy remains elevated. There is a little more clarity on the scope and scale of US tariffs and policy responses in other countries, suggesting that more extreme outcomes are likely to be avoided."

It is worth noting that the global trade environment has changed. Ahead of the August RBA meeting, United States (US) President Donald Trump's tariffs came into effect. Australia faces a baseline 10% levy, which is not terribly disruptive but still a problem. Nevertheless, policymakers made it clear that the downward revision to the GDP forecast is owed more to a lower outlook for productivity growth, instead of trade disruptions.

In the current environment, market analysts expect another rate cut in November, the last one for this year.

How can the GDP report affect the Australian Dollar?

The Q2 GDP report will be released on Wednesday at 01:30 GMT. Ahead of the announcement, the AUD/USD pair battles to retain the 0.6500 threshold. The pair is sharply down on a daily basis, trimming half of the previous week's gains.

Generally speaking, a better-than-anticipated GDP outcome would be positive for the AUD, while discouraging figures would put the currency under selling pressure. At this point, a growth acceleration below expectations would not affect the RBA's monetary policy stance, meaning it should not affect the odds for future interest rate cuts.

Valeria Bednarik, Chief Analyst at FXStreet, notes: "The AUD/USD pair could gain extra-bearish traction once below the 0.6490 price zone, as the daily chart shows that buyers are aligned around a flat 20 Simple Moving Average (SMA), which is barely enough to contain the decline. The same time shows that technical indicators have rotated south, although they still hold within neutral levels. The next relevant support and a potential bearish target comes at the 100 SMA, currently at 0.6480. Further slides should see the pair extending its slide towards the 0.6430 region."

Bednarik adds: "The AUD/USD pair would face initial resistance at 0.6535, Monday's low, followed by the weekly peak at 0.6560. A clear break above the latter exposes the 0.6600 threshold."