The AUD/USD pair hit a two-month low as the Australian economy grew by 2.30% in December 2018, its weakest pace since June 2017. Expectations of 2.80% were greatly missed, suggesting the Reserve Bank of Australia’s growth outlook of 3% in 2019 should be downgraded soon. It’s likely the RBA will cut interest rates this year. Wage growth remains far from ranges of 6 years ago (2.30% in Q4 2018) while the sharp drop in investment and construction activity due to declining house prices should prompt a reaction. January capacity utilization of 81.40% is its lowest since April 2017.
Yet fiscal stimulus by the Australian government and rising commodity prices allow the RBA a wait-and-see approach. Lower growth should lead to monetary easing sometime in the first half of 2019. AUD/USD is expected to drop further short-term: currently at 0.7030, AUD/USD is expected to head along 0.7020 short-term.
