Good morning traders,
The RBA has sent forth another caution with regards the property market in Australia. On the release of its semi-annual financial stability review early yesterday. The report cautioned the property market yet again and reached out to speculative investments. It reminded its citizens that there was a rise in speculation in both commercial and residential property markets that could be the result of massive correction in the prices and will have a devastating effect on the Australian economy as a whole. The RBA plainly said that the “the effects on household wealth and spending would be spread more broadly than on just recent property purchases”.
Also noted in the report was that it may be too early to see if there were any effects on the changes made in December to limit exposure to banking loans in residential property, and it is seeing the desired effects of their decision. There will be no major moves by the banks till they are satisfied with the results. There is still some instability regarding the process so this is probably the best idea for the banks to wait it out.
With the OIS market currently pricing around a 60% chance that the RBA will lower their rates by at least 25 points by next month, the report did not really change on any other note. The RBA did implode rate cuts to the OCR and this was not as effective in stimulating domestic demand. They will need to increase consumer confidence or this will lead consumers to spend less and then again reinforcing a weak AUD currency.
There are borderline threats that Australia may be entering into a recession. Shock and horror, but this seems to be the notion of at least 50% of the commentators. The very issues lie in the slowdown in the mining investments as well as the inability of the economy to pick up the industry fast enough. This is weighing on the entire economic activity of the country and its presence on the markets. Even though Australia has a very robust housing market this is simply not going to cut it. The segregation of the fund dominance is given to Sydney and less to Melbourne, just the mere fact that there are not equal amounts allocate to each area leads to a weaker infrastructure.
Where does this leave the AUD on the grand scale of things? As there was no new news that came from the RBA the currency did not budge much. It is however very prudent to the bank that there are concerns about the Australian economy and, in particular, the property market which will now make an interest rate hike more complex. Why? The RBA would like to decrease the interest rates to help the economy gain a bit of stability, where on the other hand it is restricted by the property market.
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Today’s trading tip:
Due to the conflicting actions on which decision the RBA need to take in order to help the currency out, I feel the AUD is stuck for now in a bearish market until proper decisions and cause and effect will be seen. The AUD is to be considered as a falling currency for the time being.