Discussion Abstracts on the RBA Financial Stability Review
- AUD / USD fell as the RBA indicated it monitors house prices and maintains broad liquidity standards.
- The RBA kept rates at 0.10% as concerns grow over whether it will be able to keep rates at 0% until 2024.
- Housing prices in Australia have skyrocketed over the past 12 months, forcing the RBA to control
In its semi-annual financial stability report, the Reserve Bank of Australia (RBA) drew attention to the domestic housing market, as more people are concerned about the surge in prices. The RBA indicated that it is closely following the growth, however, according to the bank, “the rise in asset prices is still consistent with low interest rates.”
The report highlighted new challenges, namely excessive borrowing risk and a significant increase in the number of vacancies in office real estate. The bank highlighted the marked discrepancy between rental and sale prices, as lower retail demand is likely to lead to an increase in vacancy rates and lower rents. Meanwhile, strong demand from new buyers, coupled with low interest rates, is likely to drive home prices even higher.
In addition, it was said that banks have a lot of liquidity and funding, and low rates have little impact on the profitability of banks. Australian bank balance sheets remain strong, according to the central bank, and banks are able to cope with a significant economic shock.
The Australian dollar has strengthened recently, but remains mixed in the past month. A strong recovery, coupled with unshakable confidence in the Fed’s ability to prop up the U.S. economy, has resulted in the dollar recouping some of its 2020 losses. Recent price action has shown that the bulls are protecting 0.7600, which may remain a key point for short-term traders.
AUD / USD 3-hour chart
Chart created using TradingView
The focus has been on housing in Australia lately, given the skyrocketing prices during the COVID-driven recession. Worries have intensified as many believe that rising yields are a serious and significant disincentive for the Australian housing market. RBA officials were quick to downplay any perceptions of a rate hike, saying rates are likely to remain unchanged until 2024.
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How to trade AUD / USD
In March, home prices in Australia posted the highest growth in 32 years, with home prices in Sydney leading the way. Many fears are related to the possibility of tightening financial conditions, as a result of which assets with high leverage and bloated assets could lose a significant part of their value.
In recent comments, RBA Governor Philip Lowe commented that the RBA would be watching the trend closely, but cited strong demand from new buyers as a catalyst for a sharp rise in prices. Lowe kept on saying “gIn an environment of rising house prices and low interest rates, the bank will closely monitor trends in home loans and it is important that lending standards are adhered to.…“
— Written by Brendan Fagan, DailyFX trainee
Contact Brendan, use the comment section below or @BrendanFaganFX on twitter