AUD/USD has spent all of the past 24 hours on a US 76 cents big figure, though the AUD/NZD cross has moved down from 1.10 to 1.09 and GBP/AUD remains on 1.75.
The Australian economy is largely driven by two things: exports of iron ore and the residential property market. So important is housing that the total value of all properties is around four times the size of GDP. By way of comparison, in the UK it’s around 3.5, in Canada around 2.4 and in the US around 1.6 times GDP. A huge amount of debt has had to be taken on by homeowners to accumulate this property wealth.
After Switzerland, Australia has the greatest proportion of household debt to GDP in the world; a little over 120%. What is more, there is more debt held by older homeowners than anywhere else on the planet.
This, of course, is all fine and well as long as there’s a steady stream of new entrants to the market, interest rates don’t go up and prices don’t fall. The simple problem for Australia is that it has been actively discouraging overseas property buyers, whilst prices are still too high for locals and the monetary policy debate has shifted to when and by how much interest rates will go up.
In a new opinion poll published this week by Roy Morgan, only 31 per cent of people think 2018 will be “better” than 2017 – the lowest figure recorded since the survey began in 1980. Younger Australians are more positive than older generations, with almost half (46%) of 18-24-year-olds expecting next year to be better, while just 20 per cent of over 65s feel that way.
Perhaps they feel that housing might at last become less unaffordable; not a problem if existing homeowners have little debt, but potentially a major issue for the economy if they do. Bigger picture, keep an eye on property prices for clues to the Aussie Dollar outlook…