Forex Investment and Currency Trading

• Housing finance numbers for owner-occupiers fell by a large 5.9% compared to expectations for a 0.5% rise. Housing finance approvals are now 0.2% lower than at the same time last year.
• Finance values for established dwellings took the brunt of the fall in finance values, down by 6.9% as low affordability and higher interest rates curbed demand.
• RBA interest rate rises and the unofficial tightening by the banks have broken the back of the housing market.
• The housing finance data adds to evidence of a slowing economy that has already come from falling business and consumer confidence, weak retail sales, building approvals and a decline in job advertisements.
• Recommendation: Selling AUD on rallies and buying bonds versus the US or receiving short-dated Australian swaps.

Analysis

February’s decline in home approval numbers was much worse than expected. Even allowing for the normal volatility in the series, the result was weak and shows that the RBA’s interest rate rises and the unofficial tightening by the banks have broken the back of the housing market. In addition, apartment approvals gave back all of their January increase (down 9.5% in February). However, the data predates the March interest rate increase and the most recent round of unofficial tightening by the banks. We could be in for further falls in coming months, which in a bad sign for renters, will put more pressure on the existing stock of rental dwellings and add to housing rents.

Implications

This is the only Australian data release of interest to the market this week, which means that it will get more than usual attention by participants. The housing finance data adds to evidence of a slowing economy that has already come from falling business and consumer confidence, weak retail sales, building approvals and a decline in job advertisements. Apart from the widely expected high CPI result (due April 23), the activity data is likely to show further moderation in expenditure as households react to tighter financial conditions.

Recommended Strategy: selling the AUD, buying bonds versus the US or receiving short-dated Australian swaps.