AUD/USD drops as Australia's economy contracts 6.3% in the second quarter

• The overbought Aussie dollar faces selling pressure on Australia's dismal Q2 GDP release. 
• The economy contracted by 6.3% in the April to June period. 

The selling pressure around the Aussie dollar is gathering pace and pushing AUD/USD lower with Australia reporting a bigger-than-expected second-quarter economic contraction soon before press time. 

GDP drops by 6.3%

Australia's economy contracted by 6.3% year-on-year in the April to June period versus a forecast for a 5.35 contraction and down from the preceding quarter's growth rate of 1.3%, the gross domestic product (GDP) data released at 01: 30 GMT showed.

The economy registered a negative growth rate of -7% versus expectations for -6% in quarter-on-quarter terms. 

The GDP data shows the Australian economy fell into its deepest slump since the Great Depression. The decline was expected as the economic activity had come to a standstill due to coronavirus-induced lockdown restrictions. 

That said, the economy has contracted more than expected. As such, the overbought Aussie dollar is feeling the pull of gravity. 

At press time, AUD/USD is trading at session lows near 0.7344, representing a 0.36% decline on the day. The pair has shed over ten pips since the release of the GDP data.  

A more profound drop may be seen during the day ahead as signs of uptrend exhaustion have emerged on the daily chart in the form of a Doji candle. 

Technical levels