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Aussie consolidates higher despite warning over house prices

H.S. Borji
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The Australian dollar edged higher against its US counterpart on Wednesday amid signs the Reserve Bank of Australia was going to take steps to contain the country’s increasingly “unbalanced” housing market.

The AUDUSD reached an intraday high of 0.8897 before peeling back to 0.8862, advancing 0.17 percent. The pair is likely to face support at 0.8805 and resistance at 0.8903.

In other trading, the Aussie advanced against the Japanese yen, as the AUDJPY climbed 0.17 percent to 96.42. The pair faces initial support at 95.96. On the upside, initial resistance is likely found at 96.78.

The Australian dollar climbed against its New Zealand counterpart, as the AUDNZD rose 0.16 percent to 1.0994. The daily chart shows initial support at 1.0937. On the upside, resistance is ascending from 1.1005.

The Aussie has lost 1.3 percent to the US dollar over the past week and 5.3 percent since September 8, as concerns over Chinese economic growth, rock bottom iron ore prices and an uncertain domestic economy have kept the down-under currency contained.

The Australian dollar was trading within a narrow range against its US counterpart after the RBA issued its Financial Stability Review, which provides an outlook on the domestic economy, including an assessment of the country’s financial system.

The RBA expressed concerns about soaring house prices and the “unbalanced” nature of the housing and mortgage markets, particularly in the Sydney and Melbourne areas.

“Recent housing price growth seems to have encouraged further investor activity.
As a result, the composition of housing and mortgage markets is becoming unbalanced, with new lending to investors being out of proportion to rental housing’s share of the housing stock,” read the official RBA report.

Discussing ways to mitigate “high rates of lending growth,” the RBA added, “The Bank is discussing with [the Australian Prudential Regulation Authority], and other members of the Council of Financial Regulators, additional steps that might be taken to reinforce sound lending practices, particularly for lending to investors.”

Separately, Australia’s economy showed signs of strength in July, according to the Conference Board’s leading index. The leading index, which measures current and future trends in the overall economy, rose 0.5 percent, following a 0.2 percent increase in June. That was the strongest monthly gain since January.

The Australian economy has been under pressure this year, as policymakers look for ways to boost growth amid austere budgetary reforms and a broad pullback in natural resource investment, which is expected to cost the economy tens of thousands of jobs. The recent plunge in the local currency is a welcomed sign for policymakers, who have expressed concerns about the Aussie’s historically high exchange rate.

A weaker Australian dollar, it is hoped, will rev up the country’s manufacturing, tourism and education sectors.

Australia’s release calendar is empty for the remainder of the week. RBA Governor Glenn Stevens will deliver a speech on Thursday to the Melbourne Economic Forum at Melbourne University. Currency traders and macroeconomic analysts will closely monitor the speech for clues about the expected path about monetary policy.

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