Australian dollar falls as US housing warms up

See the latest Australian dollar analysis here:

RBA drops deflationary AUD-bomb on economy

DXY eased last night as EUR firmed and CNY fell:

The Australian dollar continues to fall versus DMs:

Mixed against EMs:

Gold firmed:

Oil too:

Metals were mixed:

Miners fell:

EM stocks eased:

Junk firmed:

Treasuries rose:

Bunds too:

And Aussie bonds:

Stocks firmed:

More US housing data last night indicating that the bond rally, which pegs US fixed mortgage rates, has already lifted activity. Existing home sales were strong:

Existing-home sales inched up in August, marking two consecutive months of growth, according to the National Association of Realtors®. Three of the four major regions reported a rise in sales, while the West recorded a decline last month.

Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 1.3% from July to a seasonally adjusted annual rate of 5.49 million in August. Overall sales are up 2.6% from a year ago (5.35 million in August 2018).

…Total housing inventory at the end of August decreased to 1.86 million, down from 1.90 million existing-homes available for sale in July, and marking a 2.6% decrease from 1.91 million one year ago. Unsold inventory is at a 4.1-month supply at the current sales pace, down from 4.2 months in July and from the 4.3-month figure recorded in August 2018.

A few more charts from WSJ’s Daily Shot make the point. Mortgage activity has lifted:

And construction is following:

Given US housing is the key leading indicator for any recession, its rebound catches the US dollar bears on the hop and is real support for a stable Federal Reserve.

The ECB has acted with more easing but transmission into European property markets is much more patchy and unpredictable. Germany has seen prices rise:

But it’s not clear that it will translate into construction:

Economically, the US remains the developed market out-performer and the USD is still sought after. I would be surprised if this is not reflected in an even higher DXY in the short to medium term.

Weighing, of course, on the Australian dollar.

David Llewellyn-Smith
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  1. MBA purchase index, housing starts and building permits were all elevated during the 00s recession. The next US recession seems most analogous with that one; driven by misallocation of capital into bloated financial assets/corporate balance sheets. Rather than a housing bubble bringing the banks to their knees as per the GFC.

  2. The US situation makes complete sense. They can lock in for 25 yrs so when yields plummet it boosts both refinancing activity and new mortgages. However activity is very sensitive to what yields are doing so if the long end was to drift higher for several months that would kill the market. Bonds are in a topping formation so it’s only a matter of time before a fully fledged bear market sets in. Once that happens the housing market is cactus.

      • Unfortunately the timing is the most difficult thing to predict but at this point the charts suggest bonds should have a decent decline around Q1 next year. Bear in mind it’s a moving target because charts are evolving all the time and the information they relay will change too. If you look at a long term chart of the 10 and 30 year yields and draw a trend line through them you can see a distinct kink at the bottom.

  3. Haven’t noticed the Esso stake in Bass Straight that’s up for sale covered. Opportunity for the government – Vic or Feds to get some gas and sell it cheap locally?

      • Even given a Govt purchase – what price does it pay? At the price can it produce Gas at an economic price for both the investment and the consumer.
        PLEASE nobody\ give me any crap that we can print money for nothing so it doesn’t matter!!! (Notes that Burb would never argue that)

        • These days I’m a balance of arguing for sound money, whilst trying to anticipate that people are going to do insane stuff to money in order to rescue near worthless, unrescueable things…, on one hand I wouldn’t argue money printing, and on the argue that someone might do it….sigh…

          • They’re gunna do it!!!! All modern economic theories, university professors, Treasury and RBA tell ’em they can!!!! Despite the fact that the same policies, on a lesser scale, have brought us to total economic and societal ruin, we’re all going to double down!