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The fall of the $AUD and the rise of the housing market

By Thomas Russell

The Australian property market has defied interest rate increases and confounded property bears.

Sydney house prices have risen by 10.7% and apartments 6.9% in the past 12 months on Core Logic’s latest numbers.
Much of the commentary to date has been fairly accurate as to the cause of such robust strength in the face of 13 straight interest rate hikes.

Wild immigration numbers, a booming rental market, rising wages, the stock market hitting record highs, strong household savings, and consumers cutting back on discretionary spending in order to meet mortgage obligations.

The weakness in the Australian Dollar ($AUD) should not be overlooked as a contributing factor of the strength in the property market.
In the past three years, the $AUD has fallen 8% against the Singapore Dollar, 6% on the US Dollar, 9% on the British Pound, and 5% against the Euro. It is worth noting that Australia has one of the lowest interest rate settings in the developed world. In and of itself, these points are not significant to the market’s fortunes.

When you factor in the Federal Government’s economic strategy is to flood the country with skilled migrants, who come with savings and a favorable exchange rate, the impact of the low dollar and relatively low-interest rate setting becomes clearer.

It also explains why the RBA may find it extremely difficult to be one of the first Central Banks to cut interest rates.
If they do, the $AUD will drop further – empowering those skilled migrants operating with stronger international currencies.

No doubt there would be broader impacts if the RBA were to cut before other first-world economies.

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