This year lending standards in Australian have tightened which has put further strain on the housing market down under. Previously banks failed to adequately check whether people’s incomes would be able to repay bank loans and now Australian banks are paying the price. You can argue that this is one of the key reasons to why the Reserve Bank of Australia have no interest in raising interest rates anytime soon.
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Going into the New Year the Banking Royal Commission are set to release further guidance in Q1. House prices in major cities such as Perth have fallen 15% in the last 4 years. If further tightening is on the horizon this could put further pressure on an overinflated housing market. Recent reports by UBS are suggesting the housing bubble could burst if further tightening standards materialise and house prices could fall by 30% in the major cities.
With the RBA not looking to raise interest rates and the housing market a key concern for Australia the Australian dollar could have a tough start to 2019. However the pound has problems of its own and I actually feel the question is which currency will weaken more throughout Q1.
The ongoing Brexit saga will be the main talking point in the UK. If Theresa May fails to get her vote through the commons in January I expect she will lose her job which will send the pound tumbling due to the uncertainty. If she manages to get the vote passed then you would expect the pound to strengthen considerably against the Australian dollar.
My personal opinion is that she has failed to achieve further concessions from the EU therefore it’s unlikely MPs are going to sign off her deal. Therefore, I expect GBPAUD exchange rates to be lower than they are now come the end of March 2019.
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