Australia Q1 GDP beats consensus, slashes rate cut expectations

Australia first quarter gross domestic product surpassed market expectations, rising the fastest in almost three years that suppressed hopes of a rate cut by the Reserve Bank of Australia in its policy meeting next week.

Gross domestic product (GDP) grew 1.1 percent in the three months to March, from the previous quarter when it rose an upwardly revised 0.7 percent, data released by the Bureau of Statistics showed Wednesday.

Further, annual growth surged 3.1 percent, from a downwardly revised 2.9 percent, maintaining the RBA’s forecast of 2.5-3.5 percent by June. Moreover, the Australian dollar appreciated almost half a US cent post the data was released, beating economic expectations, thereby reducing the need for any rate cut. However, market had anticipated a rise of 0.8 percent GDP q/q and 2.8 percent on year.

"All of the growth in the economy is coming from trade as the third phase of the mining boom kicks in as projects start exporting," said Shane Oliver, Chief Economist, AMP Capital Investors.

Although the Central Bank had eased its cash rate to a record low of 1.75 percent last month on alarming low inflation but investors are speculating a less than 0.1 probability of a further cut next Tuesday.

Meanwhile, an improving economic background may provide a political boost to the coalition government headed by Malcolm Turnbull, who will face a national election next month.