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Home Loan Data Jumps: AUD Strong

Posted Monday, September 9, 2019 by
Rowan Crosby • 2 min read

The AUD has started the week in the green and it is being helped by an uptick in home loan data.

The latest figures show a 5% rise in home loans and this is an interesting one for both the AUD/USD and RBA.

It is well known that the RBA, like most central banks, are doing everything they can to reduce interest rates. The OCR is already at a record low 1% and there is a fair bit of speculation that we’ll see another cut in the coming months.

The problem the RBA is facing is that there is some chance that record low rates will stimulate the economy, but at the same time inflate asset values.

We’ve already seen a huge housing boom take place over the last 5 years in Australia, led by money flowing from China. This time around there looks to be a fair bit of buying interest in housing one again and also the stock market.

The reality is that investors who seek yield are really limited in their options. They can’t invest in bonds as they too are at record levels and yields mirror that of the cash rate.

So that leaves investors with a slow melt up in stocks and also property. So the loan data we see today is a reflection on money coming back into property.

What does that mean for AUD traders?

Clearly, the RBA are going to need to tread very carefully as their current monetary policy is increasing the odds of another asset bubble. And that might limit the ability of the RBA to cut rates any more.

While house price increases are something that boosts sentiment and lifts spending. It also have a knock on effect as it reduces affordability for millions. And this is something Governments worry about.

So for me, the better this housing data and the stronger the stock market, the less likely we are to see an RBA cut. If they do cut we might only see a 10bp reduction, not the full 25bp.

So that could mean we have seen the bottom in the AUD/USD for the time being.

AUD/USD – 240min.
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