Asia Session: RBA Cuts Should Continue to Bolster Housing Data

China’s trade surplus widened to $16.52 billion during December, with imports increasing 11.8%y/y and exports rising 13.4%y/y. The data is mixed, given that exports didn’t fall more than expected but imports were expected to increase by 18.0%. Imports are likely suffering from slowing levels of domestic demand, stemming from a global slowdown due to the European crisis. Furthermore, this could continue to feed into exports in coming quarters which might weigh on risk sentiment going forward.

Australian home-building approvals rebounded more than expected during November, with the official figures showing a month-on-month increase of 8.4% versus a consensus estimate of 6.0%. The biggest move from the previous month came from private dwellings which increased 8.6%, against a 10.0% decline in October. We expect to see approvals continue to increase in the coming months as the full effects of the cuts to the cash rate are felt. Further, if the RBA continues on its monetary policy loosening cycle it should continue to encourage buyers to enter the housing market.

The aussie was bolstered by the better than expected Australian housing data and the increase in China’s trade surplus. AUD/USD has managed to hold above 1.0250 for most of the session and even managed to break above 1.0300 late in the session. However, the pair couldn’t manage a sustained break of 1.0300, which suggests to us that this level could act as resistance for any possible push higher. On the downside, AUD/USD might find some support around 1.0250.

In New Zealand, building permits month-on-month came in well below expectations of 3.3% at -6.4%. The figure is the last in a series of data that points towards a domestic economy feeling the effects of a global growth slowdown and the impact of the earthquakes that struck the country in 2010 and 2011. So, we expect that the RBNZ to hold off from hiking the cash rate until late 2012.

Equity markets benefited from the risk-on sentiment, which was helped by better than expected consumer credit figures out of the US overnight, coming in at +$20 billion for November, against an expected increase of $7 billion. AUS200 is up by over 1.10% at the time of writing, and the JPN225 is benefiting from a rally in Olympus shares due to an announcement stating that the company plans to sue a number of past executives for hiding company loses.