Something different began to happen in Wednesday’s trading in the Northern Hemisphere day. During the previous few days of extreme equity market volatility, the USD tended to do well as stock markets fell, with its best session (the European morning on Tuesday) coming as equities were smashed and US 10-year yields fell back to 2.70%. As the US indices recovered sharply Tuesday afternoon, so the US Dollar gave back all of its morning gains. This pattern continued into Wednesday, as the early call for the DJIA to open 200 point slower helped underpin the USD. But, as stocks extended gains and bond yields rose back to 2.79%, so the US Dollar continued to rise and finished the day at the top of our one-day performance table. We mention this at the top of our report because it goes a long way to explaining the performance of AUD/USD which yesterday tumbled over three-quarters of a cent from the high in Sydney to a 4-week low around 0.7825. AUD/EUR and AUD/NZD, by contrast, finished little changed on the day.
Bloomberg reported yesterday that Commonwealth Bank of Australia – the nation’s largest bank – has reduced its exposure to apartment developers by more than A$1 billion ($789 million), or 23%, according to data included in its first-half earnings report, released today. It’s also pulling back on loans to property investors, which rose just 0.5 percent compared to 7.5 percent growth for owner-occupier loans. Data released last week showed Sydney house prices, which surged 75% between February 2012 and July, have now dropped 3.1% from their peak. As the other major banks report their numbers over the next few weeks, analysts will be looking for any further signs of caution on the property market which has been a major driver of household consumption and consumer confidence over the past few years.
The main event for the rest of this week is on Friday when the RBA releases its latest Quarterly Statement of Monetary Policy, but before then in Sydney this evening, Governor Phil Lowe is scheduled to give a speech. He is usually full of interest and insight and this first set-piece event since the summer holidays at the A50 Australian Economic Forum dinner is sure to be closely-followed. The Australian Dollar opens in Asia at USD0.7825, with AUD/NZD at 1.0790 and GBP/AUD1.7735.