RBA on hold, robust Q4 growth cushions Aussie dollar

Real GDP growth was a solid 0.6% q/q (not annualised) in 4Q15, following 1.1% (revised up from 0.9%) in the previous quarter. Once again, growth was driven by consumption, thanks to supportive labour market conditions and residential investment.

In contrast, business equipment investment continued to be a drag on GDP due to the decline in mining capex. The net exports contribution was muted in 4Q'15, likely owing to some payback from the large 1.6pp q/q contribution in the previous quarter. Meanwhile, the over-year-ago comparison accelerated from 2.7% in 3Q to 3.0% in 4Q, putting 2015 full year GDP growth at 2.5%.

We expect the pace of growth in the current quarter to be almost unchanged from 4Q15, as consumption continues to gradually increase and net exports offsetting the drag from mining investments, while an expected mild acceleration in the second half of the year puts our full-year growth forecast (2.9%) above consensus.

Net exports has been supportive, exports cushioned a flat contribution in 4Q'15, mainly due to some payback from the previous quarter's strength - a 1.6 pp contribution to QoQ growth (not annualised). We believe that net exports will continue to be a driver of growth as more production comes on line this year.

As a result, the Aussie dollar gained against its U.S. counterpart on Wednesday during early European session, boosted by upbeat Australian economic growth data, AUDUSD has been gaining from last three consecutive days, rose by 0.64% from yesterday's 0.7174 to the current 0.7220 levels, while EURAUD was dropped below 1.5105 to the current 1.5062 levels. Same is the case with GBPAUD, slumps are extended from yesterday's 1.9436 to the current 1.9305 levels. AUD's gain against yen is no exception, has been rising from last two days (from Monday's lows of 80.449 to the current 82.441).