Australian Dollar Unimpressed by Record Construction Output Rise

Talking Points:

• 3Q Australian construction work done rose 15.7%, the largest single quarter increase recorded
• The Australian dollar and local bond yields were little changed by the record output data
• The data follows comments from RBA’s Lowe, who said there will be no near term change in policy

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The Australian Dollar was little changed after third-quarter construction work data, which showed an increase of 15.7 percent from the prior period. This release marks the largest single-quarter increase in construction output on record. Analysts expected a fall by 2.3 percent. The prior number was upgraded to show an increase of 9.8 percent, up from the initially reported 9.3 percent.

The negligible impact of the release may reflects its limited implications for near-term RBA policy expectations. Indeed, according to a speech from Governor Phillip Lowe just yesterday, “there is no case for a near-term adjustment in monetary policy”. Markets do not expect a change in the target cash rate until November 2018 at the earliest.

Lowe also noted that while the RBA is not specifically targeting housing, it is looking for a “return to sustainable growth [in prices]” as risks from overheating real estate hinder policymakers’ ability to tackle weak employment. Put simpler, worries about stoking a housing bubble have limited the RBA’s ability to stimulate the economy with rate cuts. A surge in construction points to a supply boost that might cap prices and offer a bit more policy flexibility going forward.