RBA sidelined by strong house prices

The RBA meets on Tuesday and it is expected to keep the cash rate unchanged at a record low of 2%. The RBA retains an easing bias, but seems happy to stay on the sidelines given the strength in house prices. 

There have been strong talks from RBA officials on house prices lately, but board member Edwards' recent comments suggest to us that if the RBA saw an economic need for a further cut, then it would act despite its deep concern over house prices. 

While RBA is likely on hold and rate cuts may not provide the impetus for further AUD depreciation, several other factors should weigh on the currency going forward including: weak non-mining activity; deteriorating risk conditions; and worsening overvaluation due to poor trading partner growth and continued declines in commodity prices. 

"We remain short AUDUSD spot position targeting 0.70",said Barclays in a report on Monday.

Australia labour market data (Thursday) is likely to be relatively soft as the unemployment rate increases to 6.1% in June from 6.0% in May (consensus: 6.1%) and the economy adds just 5k jobs (consensus: no change).