Home Australia Australian dollar continues to plunge against the USD: Here’s what the ‘bloodbath’ means for your mortgage

Australian dollar continues to plunge against the USD: Here’s what the ‘bloodbath’ means for your mortgage

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With the Australian dollar now trading at just 61 US cents, its lowest level in five years, fears are growing about what this means for mortgages (pictured, buyers in Sydney).

With the Australian dollar now trading at just 61 cents (its lowest level in five years), consumer confidence is falling and fears about what this means for mortgages are rising.

Apart from three days in October 2022, the Australian dollar has not been below 62 cents since late March and early April 2020, the first time it has reached such a low level since the 2008 global financial crisis.

This has raised fears that the fall in the Australian dollar will cause import prices to rise and mean the Reserve Bank of Australia (RBA) is reluctant to cut rates, dashing hopes of any payment relief. mortgages.

But Westpac Chief economist Luci Ellis told Daily Mail Australia the situation is not that simple, there are much broader facts to consider and the short answer is no, the exchange rate is not that important a factor.

‘W“What’s really happening is that the US dollar is strong,” Ms Ellis said on Tuesday.

‘And the reason is that market participants have changed their minds about what they expect the Federal Reserve (U.S. Federal Reserve) to do.

‘They now hope the Federal Reserve won’t cut rates as much as they previously thought. And in fact, one of the world’s big banks, the Royal Bank of Canada, now says it doesn’t think the Federal Reserve will cut further at all.

“So if rates in the United States are going to be higher, that makes US dollar-denominated securities look more attractive… it’s not us, it’s them.”

With the Australian dollar now trading at just 61 US cents, its lowest level in five years, fears are growing about what this means for mortgages (pictured, buyers in Sydney).

Westpac chief economist Luci Ellis (pictured) told Daily Mail Australia there are much broader factors the RBA must take into account in any decision on an interest rate cut.

Westpac chief economist Luci Ellis (pictured) told Daily Mail Australia there are much broader factors the RBA must take into account in any decision on an interest rate cut.

Ms Ellis said it was “possible that consumers were reacting to news about the depreciation of the Australian dollar against the US dollar, which led to some negative headlines about the outlook for interest rates and the wider economy”.

In addition to a sharp drop from more than 69 cents on the dollar in late September, consumer confidence around employment also fell 2.8 percent to 127.2 percent, even though the unemployment rate fell to 3.9 percent in November.

“Consumer confidence around employment continues to deteriorate even though the latest official unemployment data remains low and job vacancies have increased,” the chief economist said.

The best thing, though, is that Australians are feeling more positive about the property market.

While views on mortgage rates declined slightly, from 105.8 percent to 105.7 percent, expectations about the overall housing situation have improved.

“Within the overall view on interest rates in January, homeowners with a mortgage were more likely to expect a rate cut than renters or direct homeowners,” Ms Ellis said.

“While the proportion of (mortgage holders) expecting a cut has outpaced that of renters for more than a year, this month’s increase has put them ahead of homeowners as well.”

Ultimately, the current decline in the value of the Australian dollar against the greenback will have “quite a small effect” on any interest rate decisions, Ms Ellis said.

Apart from three days in October 2022, the Australian dollar has not been below 62 US cents since late March and early April 2020 (Australian and US banknotes pictured).

Apart from three days in October 2022, the Australian dollar has not been below 62 US cents since late March and early April 2020 (Australian and US banknotes pictured).

‘YO“There is no major impact on what the RBA is going to decide,” the economist said.

‘The most important thing the RBA will decide is whether inflation is falling fast enough – we will know more about that later this month – and whether the labor market is still easing.

“So the RBA assesses the labor market as too tight, rather than full employment, so they expect to see further easing in the labor market and in the second half of last year, we didn’t see that.” .

‘In fact, unemployment decreased in November. We will know what happened in December on Thursday. jOb vacancies increased in Novemberso there is reason to think that the labor market was not relaxing to the same extent, or possibly was not relaxing at all in that second half of 2024.

Ms Ellis said: “If that is the case then the RBA will be concerned that demand in Australia continues to outstrip supply and therefore that would affect its inflation outlook.” The exchange rate is an input in that decision, but it is small.”

The economist added that there was a growing view that declines in mortgage rates were coming and a recognition that house prices had slowed or even fallen in most population centres.

Australia’s big four banks are divided over when a rate cut will come. ANZ and the Commonwealth Bank say the first rate cut could come in February.

But NAB and Westpac are more pessimistic and believe the first rate cut will not come until May.

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