Housing approvals send Aussie dollar soaring
BUILDING appovals have soared, providing hope that the sector has finally emerged from a prolonged period of weakness.
THE Reserve Bank's decision to keep the official interest rate on hold plus better-than-expected building approval figures bolstered the Australian dollar yesterday.
After data showed dwelling approvals soared, the Aussie peaked at US102.89C before retreating.
Approvals for houses and units climbed 27.3 per cent in May compared with April, according to the Australian Bureau of Statistics figures - that was more than five times the increase expected by economists.
Approvals rose in all states except Tasmania, with Queensland growth the slowest at 10.4 per cent.
Housing Industry Association senior economist Andrew Harvey said the approvals data represented a rare piece of positive news for the new-home building sector.
"This result provides some hope of an improved new-home building outlook emerging in time and delivers preliminary evidence that recent interest rate cuts may be starting to have an impact,'' he said.
CommSec economist Savanth Sebastian, however, warned that the figures should be taken "with a grain of salt''.
"Approvals have a tendency to be volatile on a monthly basis, particularly given the lumpiness of new-apartment approvals,'' Mr Sebastian said. But he said the likelihood of further interest rate cuts should allow the housing sector to shake off the prolonged period of weakness.
Most economists expect the cash rate to fall a further 50 to 75 basis points by the end of the year despite the RBA's decision yesterday to keep rates on hold at 3.5 per cent.
Financial markets were late yesterday factoring in a 65 per cent chance of a rate cut to 3.25 per cent at the RBA board meeting in August.
Analysts expect most major banks will leave their mortgage rates unchanged but caution ANZ may adjust its rate slightly next week as it continues its campaign for the lenders to break step with the central bank.
ANZ was the only major bank to pass on the full 25-point RBA reduction last month.
In his monthly post-meeting statement, RBA governor Glenn Stevens said financial markets had responded "positively'' to the measures taken by European leaders to address the region's debt crisis.
But Europe would "remain a potential source of adverse shocks for some time'', Mr Stevens said.
Mr Stevens was also upbeat about prospects for the Australian economy, saying there was strong evidence it grew at a faster pace than "earlier indicated'' in the six months to June.
IT ALL ADDS UP
RBA keeps rates on hold at 3.5 per cent
Market expects another 50bp to 75bp cut by the end of 2012
Combination of rates plus positive building approval figures bolstered Aussie dollar
Aussie hits two-month high of US102.86¢
Building approvals rose by 27.3 per cent in May after sliding by 7.6 per cent in April
Private sector new house approvals gained 8.7 per cent in May to 7256