Minority calls for a rate cut by the central bank grows after disappointing Q3 GDP

Australian households have been finding it tough over the past two years but with the housing market starting to see a downturn, it is compounding those worries further now. Q1 and Q2 GDP figures might have indicated that Australia remains rather immune from the trade dispute between US and China but it's the domestic slowdown that policymakers ought to be worried about.

The savings ratio declined to 2.4%, the lowest since Q4 2007, as consumption was the main drag in the Q3 GDP report released earlier. It fell from +0.7% q/q previously to just +0.2% q/q in Q3. Further details show that spending on discretionary items continued to slow and it's no coincidence that the housing market downturn is happening at the same time.

House prices in Sydney and Melbourne in particular are nosediving and that reduces household wealth in general. And with your average household already facing a tough time to retain money in their pockets, you can't really expect them to spend more and that will weigh down consumption and spending patterns; and in turn, the economy.

The worry here is that the slum will extend into next year and consumption continues to be a drag on the economy for some time to come. The RBA isn't signalling anything else besides a move to hike rates moving forward but this could possibly cause a rethink in that in my view. With wage growth also nowhere near levels they want it to be, the household squeeze is likely to continue into next year.

Even if it doesn't mean the central bank will shift towards cutting rates, it at least will solidify the notion that they won't be able to hike rates next year either. And that will be yet another prolonged drag for the Australian dollar with monetary policy divergence to stay on as a key factor in trading the currency.