Australian Dollar's Rally Cools; Focus Back On Housing

 
   By James Glynn 
 

        SYDNEY--The Australian dollar marked time in Asia Friday, its recent sharp rally apparently exhausted for now amid more warnings from the central bank about risks associated with house price growth.
        At 0610 GMT, the Australian dollar was trading at US$0.7859, down slightly from US$0.7877 late Tuesday. It traded above US$0.7900 earlier this week.
        The Aussie dollar's strong start to the week hit the skids, said John Kicklighter, chief currency strategist at FXCM.
        "It comes as no coincidence that doubt has dawned as the currency reaches key levels like US$0.7900, the cap for the exchange rate for the past two months, he added.
        "Fluctuation within a range is one thing, attempting to reverse a six-month trend of depreciation is another--it takes conviction," he added.
        Earlier Thursday, the Reserve Bank of Australia gave a solid pass mark for banks in its twice annual financial stability review. But it said property price gains were a worry, and concerns were spreading to the commercial property market.
        Still, action to dampen surging lending for investment properties looks likely in coming months.
        "Risks in housing and commercial property markets are rising in association with fast price growth in some cities, heightened investor activity and strong price competition among lenders," the RBA said.
        Having introduced measures in December designed to cool lending for investor property, which now accounts for close to half of all loans, the Australian Prudential Regulation Authority now looks set to tighten its focus on individual institutions, the RBA said.
        After a recent period of investigation into lending practices, some banks "are likely to attract the attention of the regulators."
        These measures and subsequent "behavioural adjustments" should help to ensure that prudent lending standards are maintained, the central bank said.
        The RBA needs to heat to be taken out of house prices so it can lower interest rates this year to support an otherwise moribund economy.
        "Reading between the lines of the Reserve Bank of Australia's latest report on financial stability, there is a warning that further cuts in interest rates are not without their risks," says Craig James, chief economist at Commsec.
        Still, financial markets continue to price aggressive interest rate cuts this year, with two expected by the end of the year. That would lower the RBA's cash rate to a record low 1.75%.
        -Write to James Glynn at james.glynn@wsj.com
        (END) Dow Jones Newswires

        March 25, 2015 02:28 ET (06:28 GMT)

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