Australian dollar slides as economy enters into recession; Asia-Pacific markets higher

Stocks in Asia Pacific rose in Wednesday afternoon trade as data showed Australia’s economy has officially slid into a recession.

Australia’s S&P/ASX 200 led gains among the region’s major markets as it jumped 1.78%.

Australia’s gross domestic product fell 7% in the June quarter — the “largest quarterly fall on record” — the Australian Bureau of Statistics (ABS) said Wednesday. That followed a 0.3% fall in the March quarter, said the ABS. 

Following the data release, the Australian dollar changed hands at $0.7355, slipping from an earlier high of $0.7381.

Economists at Commonwealth Bank of Australia said in a note: “Nobody should be particularly surprised that production drops sharply when large parts of the economy are shut down. This was a manufactured contraction in the economy that was a direct result of policy decisions to limit the spread of COVID‑19.”

“Looking ahead, it is our assessment that GDP will likely post a small contraction in Q3 20,” the economists said. “We estimate that the lockdown in Victoria will have a sufficiently big negative impact on the national economy to see output contract.” Stricter social distancing measures were put in place in Victoria, one of Australia’s most populous states, following a spike in coronavirus cases in recent months.

Elsewhere, mainland Chinese stocks were mixed by the afternoon, with the Shanghai composite down 0.39% while the Shenzhen component was slightly higher.

In Japan, the Nikkei 225 gained 0.34% in afternoon trade while the Topix index added 0.25%. South Korea’s Kospi dipped 0.2%. Hong Kong’s Hang Seng index slipped 0.55%.

Overall, the MSCI Asia ex-Japan index was fractionally higher.

Overnight stateside, the S&P 500 rose 0.8% to close at 3,526.65 while the Nasdaq Composite advanced 1.4% to end its trading day at 11,939.67. Both the S&P 500 and Nasdaq hit all-time highs. The Dow Jones Industrial Average also jumped 215.61 points, or 0.8%, to close at 28,645.66.

The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 92.353 following an earlier high of 92.465.

The Japanese yen traded at 106.02 per dollar after seeing levels around 105.5 against the greenback earlier in the week.

Oil prices were higher in the afternoon of Asian trading hours, with international benchmark Brent crude futures up about 0.7% to $45.90 per barrel. U.S. crude futures advanced 0.8% to $43.10 per barrel.

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