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Annette Beacher, chief Asia-Pacific macro strategist at TD Securities, notes that the Australian December quarter GDP expanded by a feeble +0.2%/q, as AUD broke support and slumped to $US0.705.

Key Quotes

“The RBA’s main downside risk to the outlook is consumption, and it was underwhelming at +0.4%/q or +0.2%pts to Dec qtr GDP. A year ago the consumer added +0.6%pts to Dec qtr GDP. There was no net spending on goods, it was all in services not captured by the monthly retail sales report. Nevertheless, markets will be closely watching out for tomorrow’s January update.”

“Despite balanced risks, the RBA base case is achieving sufficient growth to tighten the labour market further and boost inflation back to target over time. The Governor’s speech today reiterated that the strong labour market is an important offset to falling house prices, and the February report is released 21 March. Mar qtr CPI on 24 Apr and WPI on 15 May are the next quarterly RBA policy hurdles.”

“GDP expanded by 2.8% in 2016, below trend 2.4% in 2017 and 2.8% in 2018, yet the labour market remains ‘strong’ and wages are rising, albeit gradually. The RBA expects GDP growth to return to 3%/y by the end of this year, and average 2 ¾% over 2020.”