RBA likely to leave rates on hold despite strong housing data – Rabobank

Jane Foley, senior FX strategist at Rabobank points out that according to CoreLogic data, house prices in Sydney rose by 2.7% m/m in November, marking its largest monthly rise since 1988.

Key Quotes

“Melbourne wasn’t far behind, recording growth of 2.2% m/m. Nationwide, Australian house prices jumped by 1.7% m/m, the fifth consecutive monthly increase, supported by the aggressive pace of RBA rate cuts this year. The strong performance of house prices is counter to the more gloomy tone of other Australian economic data releases. Together these messages highlight the delicate path that RBA policy makers must traverse in the New Year.”

“Looking ahead, the news on house price inflation will strengthen the expectation that the RBA is likely to leave rates on hold at tomorrow’s policy meeting. However, the renewal of activity in the housing market is likely to be insufficient for prevent the RBA easing again in 2020.”

“House prices aside there are plenty of domestic economic data releases suggesting that downside risks to growth are building.”

“It is our expectations that tensions between the US and China will rise again in the months ahead and this will accelerate the economic headwinds blowing across Australia. In its Statement on Monetary Policy last month the RBA clarified that “the Board is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the medium-term inflation target over time”. We would expect similar guidance from the RBA at tomorrow’s meeting, with the view that both the Cash rate and the AUD will trend lower into 2020. We forecast AUD/USD at 0.66 on a 3 month view.”