A Hawkish Hold by the RBA Gives the Australian Dollar a Shot in the Arm

The Australian dollar is in play, global central banks turn more hawkish, and Canada’s housing market shows no sign of reigniting despite prior rate cuts.

Key Takeaways

• Inflation Expectations Ease: There is something bugging the bond market of late, but I have a tough time believing it has anything to do with the incoming data releases. We received the New York Fed’s monthly Survey of Consumer Expectations, and it showed the one-year median inflation view dipping to a three-month low of 3.20% in November from 3.24% in October. The three-year expectation hung in at +3.0%, and the five-year expectation moved fractionally below that level.

• Global Central Banks Pivot Hawkish: One bond market overhang has been the shift in global central bank views. Modestly reduced easing expectations out of the two central banks that are still in cutting mode (the Fed and BoE), and the rest are now seen hiking rates more aggressively (especially the BoC). The sharpest swings from dovish to hawkish have been the RBA and RBNZ, which is why their currencies are in play.

• Canada’s Housing Market Stalls Despite BoC Cuts: The one question I was constantly receiving from Canadian clients, as the BoC reignited its easing cycle, was whether this would trigger renewed inflation and speculative behavior in the housing market. To date, no such thing has happened. If anything, the central bank is pushing against the proverbial string. Home sales in Toronto, for example, posted a huge -15.8% YoY decline in November, and average prices have deflated by -6.4% year-over-year.