Daily Commentary BY THE CURVE TEAM –


2nd of October, 2018

The first Tuesday of the month is upon us once again and that means we get another look at the latest thinking of the RBA.

Today’s meeting of the RBA Board is likely to once again see no change in the current policy settings. While we are also likely to see little in the way of updated rhetoric surrounding the outlook for monetary policy, is could only be a matter of time until cracks start to appear.

I have spoken about the growing risks to the RBA’s outlook for a number of months now. This growing risk centres around the debt, housing market and consumption dynamics.

The latest data on the housing markets shows that prices across the capital cities have now been falling for 12 months. The falls are still being led by Melbourne and Sydney with the latter falling the furthest and for the longest.

Pressure will continue to build on housing with even more scrutiny on lending expected following  the release of the interim report from the Royal Commission. The AFR is even reporting that the RBA and Treasury have warned the government about going too hard at the banks for fear of placing further pressure on the housing market.

The big risk is not with the housing market though, but with its second round effects. Should the housing market deterioration become longer and deeper, it will eventually flow through to consumption and the broader economy, particularly the employment market. That is the real risk and something that the RBA in its public rhetoric, has so played down.

Today we are likely to see little change in the RBA’s core stance. But the longer and deeper the downturn in the housing market becomes, the greater chance the RBA will need to change its outlook.

Quickly moving to events offshore and it seems that there has been a win on trade negotiations in North America. The North American Free Trade Agreement will now become the United States-Mexico-Canada Agreement after the US and Canada came to an agreement.

In announcing the agreement, Trump was quick to hose down speculation it would mean that a similar agreement with China could be around the corner.

David Flanagan

Director - Interest Rate Markets