More encouraging data for the Aussie overnight, although after the strong performance seen of late the currency was somewhat reluctant to get too excited. House price data for the second quarter showed a rise of 0.5%, which is the first increase for five quarters. Of course, Australia’s property market did not suffer from the dramatic boom and bust seen in many other countries, with the peak-to-trough decline (if indeed this does prove to be the bottom) of 5.1%. In the US, the price of existing homes fell by around 25% (although now recovering). Should the Q2 rise in property prices be sustained, it will offer further evidence of the resilience of the Australian economy and reduce the prospects of more easing from the Reserve Bank of Australia next week.
The Aussie itself appears to be consolidating above the 1.05 level after the strong gains of the past week. This is perhaps not surprising given that the Aussie was the strongest performer of the majors through July, up more than 3% vs. the USD and also outpacing the yen despite doubts about the global economy remaining. The divergence between the S&P 500 and AUD/JPY is remarkable, given the tight correlation between them in the second half of last year, but as we wrote earlier this week (“The shifting sands of FX”), it’s not totally without reason. The Aussie can still shine, even in a risk-averse world.