Australian and New Zealand home-building approvals surged in September as lower interest rates motivated in part by sustained currency strength revive the nations’ construction industries.
The number of permits granted to build or renovate houses and apartments in Australia surged 7.8 percent from August, when they rose a revised 8.8 percent, government data showed in Sydney today. Across the Tasman Sea, approvals also increased 7.8 percent from August, when they gained a revised 2.8 percent, New Zealand’s statistics agency said.
Reserve Bank of Australia Deputy Governor Philip Lowe this week addressed the connection between his nation’s elevated currency and higher returns available relative to economies such as the U.S. and Europe where rates are near zero. The so-called Aussie’s sustained strength helped allow policy makers to reduce the overnight cash rate target five times in the past year to 3.25 percent to boost construction and other industries that are shedding workers.
“The strong exchange rate has contributed to looser monetary settings than would have otherwise occurred if the currency had been less resilient to the latest global downturn,” said Katrina Ell, an economist at Moody’s Analytics in Sydney. “Accommodative monetary settings are supporting the property market in Australia and New Zealand.”
New Zealand’s central bank has kept the official cash rate at a record-low 2.5 percent since March last year, and the effective home lending rate in August was the lowest since records began in 1998, according to central bank figures. The New Zealand dollar has gained 5.8 percent against its U.S. counterpart this year, the best-performing Group of 10 currency.
The U.S. Federal Reserve, European Central Bank and Bank of England have expanded their balance sheets since 2008 to try to resuscitate growth, and the Bank of Japan yesterday boosted its asset-purchase program for the second time in two months.
The Australian dollar rose 56 percent in the past four years, the strongest performer among 16 major currencies tracked by Bloomberg, as investors sought exposure to the raw materials powering China’s economic boom.
The Aussie maintained earlier gains, trading at $1.0385 at 1:52 p.m. in Sydney compared with $1.0367 before the release. New Zealand’s currency was also higher, buying 82.23 U.S. cents compared with 82.08 cents yesterday.
Australian and New Zealand policy makers have publicly discussed options available to cope with currency strength.
Lowe said yesterday that while the RBA maintains the option to intervene in currency markets to weaken the Australian dollar, such a move would require evidence that it’s fundamentally overvalued and is restraining the economy in a significant way.
Reserve Bank of New Zealand Governor Graeme Wheeler, in his inaugural address last week, signaled he wants a weaker currency without having to resort to unorthodox policy that may disrupt efforts to contain inflation.
The RBA has reduced its overnight cash-rate target by 1.5 percentage points since November last year, and it remains among the highest borrowing costs among major developed nations. Traders are pricing in a 55 percent chance policy makers will cut by a further quarter point at the RBA’s Nov. 6 meeting, according to swaps data compiled by Bloomberg.
“Lower-than-average interest rates are providing some support to demand in the economy,” Lowe said in yesterday’s speech in Sydney. “There is also some sign that they have led to a slight improvement in the property market, although there has been little change in the appetite for debt.”
Loans provided by Australian banks and finance companies rose in September at the fastest pace in three months and exceeded economists’ forecast, increasing 0.3 percent from a month earlier, as loans for housing gained 0.4 percent, a report from the RBA showed today.
Australian building approvals in September increased 12.4 percent from a year earlier, today’s statistics bureau report showed. That compares with economists’ forecast for a 2.1 percent rise year-over-year.
The construction industry in Australia has lost about 70,000 jobs in the past year, according to government figures compiled by Bloomberg.
In New Zealand, permits excluding those for apartments rose 5.6 percent from August, when they increased 5.2 percent, today’s report showed.
Construction was New Zealand’s most optimistic industry in October, with 46 percent of firms expecting better sales in the next 12 months, according to an ANZ National Bank Ltd. business confidence survey last week.
Approvals in Australia to build private houses rose 1.2 percent to 7,484 in September from the previous month, today’s report showed. Approvals for apartments and renovations advanced 17.9 percent to 5,772.
Australian home prices climbed by the most in 30 months in September, according to RP Data.
House and apartment prices across Australia’s eight state and territory capitals rose 1.4 percent in September from the previous month, the most since March 2010, the RP Data-Rismark Home Value Index showed Oct. 2. They also rose 2 percent in the three months ended Sept. 30 from the prior quarter, the Brisbane-based researcher said.
“There has been some stabilization in the property market since the RBA began cutting rates last year but it is still weak,” Ell said. “We are cautiously optimistic the RBA’s easing bias will dampen upward pressure on the exchange rate and breathe life into the non-mining, export-facing sectors of the economy struggling to achieve trend growth in coming months.”