Things have changed rapidly in the past few months. Initially considering a rate hike for 2019, the Reserve Bank of Australia (RBA) has finally changed its rhetoric, gradually turning from a hawkish to neutral and finally reversing towards a dovish bias. The Australian economy continues to face heavy contradictions, with a solid labor market on one hand and a slackening property market on the other, putting the government under pressure ahead of 18 May 2019 general elections.
According to recent national poll survey, 2019 elections are expected to be tight, with a slight advantage provided to PM Scott Morrison Coalition’s (Liberal and National parties’ coalition) opponents from Australian Labor Party. Yet challenges remain as inflation is expected to have declined in 1Q 2019 while weak wage growth and high household debt remain major drawbacks for the RBA. The policy minutes are therefore pointing towards a more dovish policy stance for the year while a first rate cut could occur as early as June 2019. Following the publication of the minutes, the Aussie is the largest loser among G10 currencies. AUD/USD trades at 0.7145, approaching 0.7130 short-term.