AUD GBP: Goldman Sees 2022 Peak in Australian House Prices

AUD GBP Higher after Inflation Data, Sunak Budget Ahead

The AUD GBP exchange rate was trading flat on Tuesday after failing to hold gains above the 0.5420 level. That is the fourth attempt over the last week and may suggest resistance is in place for a decline. Today will see the latest inflation release from the UK which is the only high-level economic data for the pair this week. Meanwhile, investment bank Goldman Sachs have said a top in Aussie house prices is possible next year.

The AUD to GBP exchange rate was trading at 0.5395 and these levels are key for the dollar.

Australian house prices to peak next year, says Goldman Sachs

Australia’s housing market is expected to peak late next year and then enter a period of stagnation due to increased supply and tighter lending, according to Goldman Sachs.

The investment bank sees prices higher by 22% this year, then slowing to a 5% gain in 2022, before turning flat in 2023 and then slipping 2% the year after.

Goldman expects Australia’s regulators to impose a combination of lending restrictions based on loan-to-valuation ratios and debt-to-income over the next year. The regulator raised the minimum interest rate buffer this year that lenders need to use for assessing loan applications.

The Reserve Bank of Australia has held its key interest rate at a record low 0.1% since November 2020 and has made it clear that it does not plan to lift borrowing costs until at least 2024. The bank’s policy makers have also made it clear that monetary policy is focused on employment and wages and will not be tackling soaring home prices. That has given a green light to many lenders and homeowners and led to accusations of frothy markets this year.

“From a policy perspective, we think the softening in price growth over the next few years supports our relatively dovish RBA rates view, given a near-term hiking cycle would weigh on prices and housing-related GDP growth,” Goldman said.

As with the UK, traders are moving ahead of the central bank’s outlook and are pricing in rate hikes as soon as late 2022 or early 2023.

The Goldman analysts also said that if the RBA followed the market path, housing would fall by around 13% between 2022 and 2024, taking around 1.5 percentage points from economic growth.

Traders await latest UK inflation report

The UK economy will get the latest inflation update today with markets expecting core inflation to come in at 3% versus 3.1% last month.

However, the year-on-year inflation rate is expected to stay flat at 3.2%. A higher-than-expected inflation number would light a fire under market expectations for a BoE rate rise this year.

Goldman Sachs were also commenting on that and said that November was the likelier month for an increase because the central bank meeting includes a press conference and updated economic forecasts from the bank.

That added to pressure in the yield markets where investors are rushing to adjust bearish bets on UK interest rates in light of recent comments from the BoE’s governor.