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Talking Points

• Aussie Dollar rallies against its major counterparts

• Australian building approvals beat expectations

• Bond yield gains suggest ebbing RBA rate cut bets

Having trouble trading the Australian Dollar? This might be why.

The Australian Dollar gained against its major counterparts after Australian building approvals beat expectations. Economists were estimating that housing permits would decline 3.0 percent (MoM) and 6.5 percent (YoY) in April. Instead, building approvals increased 3.0% (MoM) and 0.7% (YoY). The Reserve Bank of Australia has been fighting to cool a housing bubble. Today’s figures showed that the central bank’s macro prudential efforts to subdue housing prices may not be working.

Meanwhile, Australia’s current account deficit shrank to -AUD20.8 billion in the first quarter (1Q) from -AUD22.6 billion in the fourth quarter (4Q) of last year. However, this missed the -AUD19.5 billion estimated by economists. Net exports as a percentage of GDP rose to 1.1% in the 1Q versus 0.0% in the 4Q of 2015. This is the highest ratio since the 3Q of 2015. With that in mind, the country’s trade balance - which shows the value of exports minus imports - is due on Thursday.

As the news crossed the wires, Australian 2-year government bond yields rallied alongside the Aussie. With overnight index swaps pricing in at least one RBA rate cut over the next 12 months, yield gains suggest that the markets are less certain that the central bank could act sooner rather than later. Taking a look at the DailyFX Speculative Sentiment Index (SSI), it is showing a reading of 1.84 following the announcement implying further AUD/USD weakness ahead.

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