Tonight we have one of the last pieces of important economic data ahead of Monday’s RBA meeting.
Given the importance of the housing market in Australia’s current economic situation (and the change in the outlook for monetary policy,) we could see some market volatility.
The AUD is likely to be in flux going into the weekend. The data release and the pricing in of expectations for a potential change in monetary policy will have an impact. But we also have the US-China trade negotiations which appear to be heading into the home stretch despite a holiday in the Asian giant.
The theory is that should the trade situation be resolved, China’s economy would return to a more auspicious path. This would then allow for more capital flows towards Australia as before. And these capital flows were once targeted towards the housing sector.
What Are We Expecting?
The data is coming out at 03:30 CET (or the day before at 21:30 EST.) The consensus is that Australian Building Approvals will increase 2.8% over the prior month, which showed a blow-out increase of 19.1%.
Last month’s data came in way above projections, led primarily by high-rise approvals. But this is widely seen as a one-off event, especially when we consider that single-story homes continued to show weakness.
Building approvals data has a certain bureaucratic factor involved. That is to say that the number can be affected by how fast the different government entities process applications for the approvals. Therefore, it can have a somewhat distorted effect when trying to read the underlying market.
More optimistic analysts point to the trend of housing prices in the last couple of months. They claim it’s not as bad as it was at the end of last year when the press started covering the situation.
However, “not as bad” isn’t a clear indication of a reversal in the trend, despite hopes that it is through the worst, as a CoreLogic researcher said.
That being said, home lending has risen recently. Though, this isn’t a surprise in a market that is offering houses that were previously not accessible to certain buyers.
On the other hand, there is quite a lot of information and trends to say that the housing problem in Australia and its effect on the economy is far from over.
The decline in prices has broadened to virtually everywhere. It no longer only affects the cities that one would consider overpriced, like Melbourne and Sydney. Despite lower prices, however, the sales in total units has declined nearly 20% since the peak.
The inflation rate in Australia has managed to stay up in the last few months. However, the poor performance in the economy, especially the housing sector, has caused a change in the outlook on the RBA’s next move.
Quite quickly, the outlook has turned from likely to have a hike in the near future to most likely there will be a cut. And it might even be coming at the next meeting.
Should housing permits come in substantially above expectations, it could give hopes of finally seeing light at the end of the tunnel. And this would support the Aussie.
On the other hand, a substantial disappointment would increase the expectation that the RBA will cut rates soon. And this would, therefore, put pressure on the AUD.