Credit Markets Respond to RBA Policy

THE TAKEWAY: Home and investment loans increased > Credit acceleration may have been a reaction to RBA easing > Australian Dollar little changed

The Australian Dollar remained relatively unchanged versus the U.S. Dollar as home loans increased to 1.3 percent in June, up from a 1.2 percent decline in May. In addition, investment lending increased 4.9 percent in June, up sharply from a 4.5 percent decline in May. The pickup in credit demand suggests that borrowers may have responded favorably to the RBA's recent action to reduce the cost of borrowing thus creating a greater incentive to take on more loans. Rates were first reduced in November 2011 when it appeared likely that key economic indicators, such as manufacturing activity and the Chinese economy, showed signs of slowing. Furthermore, the RBA subsequently cut rates in December 2011 and again in both May and June of 2012. Generally, monetary easing takes time to produce a quantifiable effect and the recent improvement in lending may foreshadow that burgeoning economic conditions could be around the corner.

AUD/USD, 5 Minute Chart