14 Apr 2014
Chinese-led demand on Australian property supports Aussie - RBS
FXStreet (Bali) - As Greg Gibbs, FX Strategist at RBS, notes, Chinese demand for Australian property has been helping to support the AUD in recent months.
Key Quotes
"Australia is receiving a new type of economic and investment support from China, coming before the downturn in mining investment is fully underway."
"This has stopped downward pressure on Australian interest rates. Low rates in major countries, low inflation, further policy easing expectations for the ECB and BoJ, and lengthening expectations before US policy tightening, has renewed carry trade momentum. This is generating renewed demand in the AUD."
"However, demand for property in Australia is dominated by Chinese and other Asian buyers and Australian investors (many borrowing from their self-managed retirement funds). Demand from first-home buyers and other owner-occupiers is muted reflecting the high valuations of property and extended household debt levels that unlike the US, UK and Europe did not experience any significant decline since the 2008 financial crisis. As such, there are limits to the extent that a renewed property boom can drive up broader demand in Australia. In fact, the rise in house prices in Australia is now beginning to generate a public back-lash that young Australians are being priced out of the market, and turn this may also limit the positive wealth-effect on consumer confidence."
"There is also a risk that a downturn in property markets in China, if it becomes severe enough, could reduce the capital shifting to offshore property markets, if it follows that financial conditions tighten significantly in China."
"The key event in Australia this week is the RBA policy minutes. The RBA has been more upbeat in recent months boosting the AUD. The message from its statements is that it is firmly on hold for the foreseeable future, making a virtue of a stable policy outlook helping underpin economic confidence."
"It has begun to sound some warnings of excesses in the property market. However, these have been rather muted and appear responsive to community concerns rather than a genuine desire to cap speculative activity. In fact the RBA has so far characterised the rise in prices and overall growth in borrowing as consistent with its policy objectives and modest relative to history. It has down-played suggestions that property prices are over-priced."
"However, the RBA would still much prefer a lower AUD to support investment outside the property sector. As such, we may see more concern in the minutes this week regarding the recent run-up in the AUD."
Key Quotes
"Australia is receiving a new type of economic and investment support from China, coming before the downturn in mining investment is fully underway."
"This has stopped downward pressure on Australian interest rates. Low rates in major countries, low inflation, further policy easing expectations for the ECB and BoJ, and lengthening expectations before US policy tightening, has renewed carry trade momentum. This is generating renewed demand in the AUD."
"However, demand for property in Australia is dominated by Chinese and other Asian buyers and Australian investors (many borrowing from their self-managed retirement funds). Demand from first-home buyers and other owner-occupiers is muted reflecting the high valuations of property and extended household debt levels that unlike the US, UK and Europe did not experience any significant decline since the 2008 financial crisis. As such, there are limits to the extent that a renewed property boom can drive up broader demand in Australia. In fact, the rise in house prices in Australia is now beginning to generate a public back-lash that young Australians are being priced out of the market, and turn this may also limit the positive wealth-effect on consumer confidence."
"There is also a risk that a downturn in property markets in China, if it becomes severe enough, could reduce the capital shifting to offshore property markets, if it follows that financial conditions tighten significantly in China."
"The key event in Australia this week is the RBA policy minutes. The RBA has been more upbeat in recent months boosting the AUD. The message from its statements is that it is firmly on hold for the foreseeable future, making a virtue of a stable policy outlook helping underpin economic confidence."
"It has begun to sound some warnings of excesses in the property market. However, these have been rather muted and appear responsive to community concerns rather than a genuine desire to cap speculative activity. In fact the RBA has so far characterised the rise in prices and overall growth in borrowing as consistent with its policy objectives and modest relative to history. It has down-played suggestions that property prices are over-priced."
"However, the RBA would still much prefer a lower AUD to support investment outside the property sector. As such, we may see more concern in the minutes this week regarding the recent run-up in the AUD."