AUD/USD Gains Interest Despite Softer Aussie Growth Now

Key Moments

BNY Highlights Divergence Between Growth Outlook and FX Flows

BNY’s Bob Savage reports that the latest reading of Australia’s Westpac-Melbourne Institute Leading Index has slipped below its trend level, pointing to a weaker growth outlook as tighter monetary policy and a Middle East energy shock constrain activity. At the same time, he notes that iFlow data shows rising investor interest in AUD/USD, supported by a combination of a firm policy stance from the Reserve Bank of Australia (RBA) and favorable terms of trade arising from the conflict-related commodity environment.

Leading Index Points to Sub-Trend Growth

The Westpac-Melbourne Institute Leading Index six-month annualized growth rate showed a clear deterioration in March 2026.

According to Savage, the movement from +0.31% in October 2025 to -0.13% in March 2026 captures a steady loss of economic momentum. He attributes this softening primarily to the impact of rising interest rates and the global energy shock associated with the Middle East conflict.

The index is described as indicating below-trend growth for the remainder of 2026, suggesting that economic activity is likely to run weaker than trend over a three- to nine-month horizon.

FX Flows Turn Constructive for AUD/USD

In contrast to the softer growth signals, Savage notes that iFlow data reveals a recent pickup in interest in AUD/USD. He links this demand to an improvement in risk appetite, which has encouraged investors back into the currency pair.

The flows are characterized as reflecting a favorable combination of a hawkish RBA policy stance and a positive terms-of-trade shock for Australia arising from the conflict-driven move in commodities. This mix is cited as supportive for AUD/USD even as the domestic leading indicators point to a period of sub-trend growth.

“Australia’s Westpac-Melbourne Institute Leading Index six-month annualized growth rate fell to -0.13% in March 2026 from +0.05% in February, marking the first below-trend reading since August 2025.”

“The decline from +0.31% in October 2025 reflects weakening economic momentum, driven by rising interest rates and the global energy shock linked to the Middle East conflict.”

“The index signals below-trend growth for the remainder of 2026, indicating a slowdown in economic activity relative to trend three to nine months ahead.”

“iFlow indicates a recent surge in interest in AUD/USD amid the recovery in risk appetite, underscoring a positive combination of a hawkish RBA along with a positive terms-of-trade shock for Australia due to the conflict.”