Talking Points:

  • The Australian Dollar strengthened tepidly as the RBA released its financial stability report
  • Strength from the global economy has tempered risks, but rising Chinese debt remains an issue
  • The RBA continues to monitor household balance sheets and domestic housing markets for risks

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The Australian Dollar rose tepidly against its major counterparts following the release of the Reserve Bank of Australia’s Financial Stability Report. The bi-annual release summarized the Bank’s opinion of current economic conditions as well as risks to the Australian financial sector.

The report noted the strengthening global economy from the first half of 2017 and its role in weakening near-term risks. However, risks emanating from China, Australia’s largest trading partner, remain “elevated” according to the report. The Bank sees China’s rising corporate debt levels, as well as credit and liquidity risks as dangerous for the Australian economy.

On the domestic front, the RBA noted that housing markets and household debt levels remain their “core areas of interest”, as indebtedness amongst the low rate environment continues to climb. Regulatory reform according to the bank has curbed the growth of riskier lending practices and strengthened the resilience of balance sheets.

Still to be released are China’s trade balance figures and new loans data, which may affect the currency’s performance when it is released. Minutes from the RBA’s most recent meeting will be released next Tuesday, and will be followed by employment data the following Thursday.

Aussie Dollar Rises Following RBA Report, China Trade Data on Tap