Earlier this month the Royal Commission of Australia released their final report which outlined that there would be no further tightening of lending standards. However the Housing market is still under severe pressure due to the changes in lending made by the banks throughout 2018 and house prices have been declining.
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House prices have a major impact on the Australian dollar, as House prices have a major impact on the economy. Firstly, when house prices fall dramatically, Central Banks tend to cut interest rates in a bid to stimulate the market. Furthermore, it’s obvious to think that people don’t want to sell their properties when house prices are falling. If the market slows, then the amount of new builds also slows and the number of Australians that are involved in the construction industry falls and unemployment rises.
Finally, some states rely on House Sales for stamp duty, If properties are not selling and the state isn’t generating money, infrastructure spending has to ease and again Australians are out of a job. For clients that are converting Australian dollars into a foreign currency, it’s important to keep an eye on the housing market. If house prices continue to fall I expect the Australian dollar will fall also.
This week Australia are set to release their latest wage growth and employment numbers. Already this month the RBA hinted that an interest rate cut could occur if the economic numbers fail to impress. Wage growth numbers are set remain buoyant at 2.3% for the year and 0.6% for the quarter.
Furthermore the unemployment rate should remain unchanged at 5%, however the amount of jobs created is predicted to have failed to 15k from last month’s 21.6k.
If the numbers are released as predicted I expect the Australian dollar to have a positive week, however if the numbers are released below expectation the RBAs rate cut looks more likely and therefore the Aussie could face further pressure in the weeks to come.
For clients that are selling Australian dollars to buy sterling, I expect it to be a quiet week in the UK in regards to Brexit negotiations. Some may say no news is good news, however I feel the uncertainty will put pressure on the pound throughout the week and as long as the data releases come out as expected in Australia I expect buying sterling will become cheaper throughout the week.
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