Kicking things off today, housing credit growth for December rose by just 0.3%, the slowest pace since October 2022.
At the same time, Retail sales fell by 3.9% in December (vs -0.2% expected), for the most significant monthly fall since August 2020. The fall in December unwinds the 1.4% gain in November, boosted by Black Friday cyber sales.
- Core Logic Dwelling prices (Wednesday) are expected to show housing prices fell -1.1% in the seasonally quiet month of January, extending the correction that began in May 2022
- Building Approvals fell by 9%, following a 56% fall in October. The market is looking for a modest bounce back of +1% in December. Building Approval data is a notoriously volatile data set, and expectations range from -5% to +8%
- Housing Finance fell for a sixth straight month in November to be 24.8% below the peak of January 2022. The decline is expected to continue in December, with the market looking for a 2.5% fall in December (Friday).
Following the release of hotter-than-expected Australian inflation data last week, the RBA is widely expected to lift its official cash rate by 25bp from 3.1% to 3.35% next Tuesday. The interest rate market then has another 50bp of rate hikes priced by August of this year, which would take the cash “peak” rate to 3.85%.
The RBA has made clear its “priority is to re-establish low inflation and return inflation to the 2–3 per cent range over time.” While a series of RBA rate hikes in 2023 would be another blow to the housing market, they would be good news for the AUD/USD, already enjoying the tailwinds of the China re-opening and higher commodity prices.
Overnight the past 24 hours, the AUD/USD has fallen back to .7050 on soft retail sales data, risk aversion flows, and with the US dollar in demand overnight for month-end rebalancing flows.
After reaching and marginally breaching our August .7137 target from this article in Mid-January here last week, we expect to see the current pullback in the AUD/USD continue towards uptrend support at .6900c.
At worst, the pullback may extend to the 200-day moving average at .6810 to work off overbought readings and to rebuild energy for its next leg higher towards .7300c.
