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- AUD eases lower after housing data, weak CNY economic figures.

- Employment figures, inflation data and RBA outlook now in focus.

- AUD/USD to remain in recent range says Commonwealth Bank.

The Australian Dollar softened Monday as concerns about the domestic and Chinese economies resurfaced, drawing attention away from progress in talks between Washington and Beijing while threatening to scupper the Antipodean's nascent recovery.

Chinese GDP growth fell to 6.4% during the final quarter of 2018 according to data released Monday, down from 6.5% previously, marking a third consecutive decline and the slowest pace of expansion since 1990 by some estimates.

Other figures showed industrial production, fixed asset investment and retail sales growth all stabilising during December, which economists attribute to government stimulus measures aimed at propping up the economy, but the data still makes grim reading for analysts.

"China’s economy is clearly on a soft footing. This indicates a further growth slowdown this year, and also poses a significant downside bias for the regional economy," says Hao Zhou, an analyst at Commerzbank.

This matters to the Australian Dollar because the currency is underwritten by Australia's huge commodity exports to the world's second largest economy, which means there is an interdependence between the two that has seen the Aussie develop a strong correlation with the Renmimbi,

China's economy is weakening under the weight of tariffs imposed by the White House on $250 bn of it annual exports to the U.S.

Talks to end the so-called trade war between the two are said to be progressing well but unless an agreement is made by March 01 the 10% levy that currently applies will rise automatically to 25%.

Beijing's negotiators were said at the end of last week to have offered to eliminate the bilateral trade deficit between the two countries in order to end the dispute over its "unfair trade practices", according to Bloomberg News, through increased imports of American goods for a specified period.

"While the proposals is clearly a positive step, other key issues like China's alleged intellectual property theft and state-sector support remain unresolved," warns Vivek Dhar, a commodity strategist at Commonwealth Bank of Australia.

Pressure on China is increasing at a time when risks to Australia's domestic economy are becoming more pronounced. With house prices having declined steadily in Australia's major cities last year, data released Monday showed transaction volumes falling off a cliff in December.

New home sales fell by -6.1% in Australia last month, according to the Housing Industry Association, which was the largest one-month fall to be seen since June 2017. The actual number of sales that took place was the lowest since November 2012.

"With a federal election on the horizon where housing policies will be front and centre, combined with the potential for the recommendations from the Royal Commission to further shake up the mortgage market, early 2019 is unlikely to see household confidence restored," the association said Monday.

Above: AUD/USD rate shown at daily intervals.

The AUD/USD rate was quoted -0.16% lower at 0.7155 during the morning session Monday and is now up 1.45% for 2019.

The Pound-to-Australian-Dollar rate was 0.31% higher at 1.7989 but has fallen by -0.6% for the year-to-date.

Above: Pound-to-Australian-Dollar rate shown at daily intervals.

The fact house sales are still falling at such a rapid clip when the number of transactions is already at a six year low demonstrates the extent of the challenge faced by the market, which has seen mortgage rates rise notably in the last 12 months after years of runaway price growth.

Fears are that a severe and prolonged downturn in prices will hurt consumer confidence and deter spending, which could lead to slower economic growth at a time when financial markets are already betting heavily against the Aussie.

"If the pessimists are right and the current house price fall does become a calamity that requires RBA intervention, then a single -25 basis point rate cut will not be enough," warns Martin Whetton, head of bond and rates strategy at Commonwealth Bank.

Investors are now betting heavily that the Reserve Bank of Australia (RBA) will be forced to cut its interest rate to a new record low over the coming year, which had pushed the market-implied RBA cash rate for February 2020 down to 1.34% by Monday, well below the current 1.5% level.

These bets have weighed on the Aussie in recent months, particularly against the higher-yielding U.S. Dollar, but could yet prove a further drag on the currency if employment and inflation data due this week and next pose a further challenge to policymakers.

The inflation data is expected to reveal that domestic pressures are still insufficient to sustainably lift the consumer price index into the RBA's 2%-to-3% target band., which all but rules out a rate hike any time soon. Employment data is important for the outlook for wages and prices.

"The face-off that defines whether or not the market can continue to price the RBA as having an easing cycle will likely come as a combination of the CPI data and the RBA SoMP istel. The labour force data this week will do its part - but can't undo the agitation caused by the house price data," says Whetton.

Changes in interest rates are normally only made in response to movements in inflation but impact currencies because of the push and pull influence they have on capital flows as well as their allure for short-term speculators.

Local analysts are not buying the international narrative that the RBA will soon be forced to cut rates. They say this is unlikely to happen, but acknowledge the bank itself may now need to come out and say that if investors are to be discouraged from the view.

With this in mind, next Wednesday's reading of the December consumer price index will be a landmark moment for the Aussie ahead of the RBA's next meeting at the beginning of February, while this Thursday's employment report will effectively be just a sideshow.

"We see little this week to challenge the recent trading range in AUD/USD as it averages close to 0.72," says Joseph Capurso, a currency strategist at CBA. "AUD/NZD will maintain its modest upward trend toward 1.07, since trading around 1.0440 around a month ago."

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