Rising Housing Credit Growth

Increased housing credit growth often signals a strong property market, while business lending reflects investment confidence. This information helps the RBA (Reserve Bank of Australia) evaluate the financial landscape. When credit growth rises, it may indicate an overheating economy, while a decline can suggest lower economic activity. Traders analyze the RBA’s credit data to assess housing demand, business mood, and monetary policy effectiveness. In July, private sector credit growth surprised everyone by increasing +0.7% month-over-month. This unexpected rise in borrowing by households and businesses shows that economic demand is still strong. This situation raises concerns about ongoing inflation, which has been slightly over 3.5% this year. This strong credit report challenges the market’s earlier belief that the RBA might lower rates by early 2026. We saw a similar trend of robust credit growth in late 2023, which led the RBA to keep rates steady for much longer than expected. Now, we should expect changes in interbank cash rate futures, indicating a lower chance of any policy easing in the next six months.

Implications For The Australian Dollar

As a result, we predict the Australian dollar will gain strength against currencies like the US dollar. The US Federal Reserve recently indicated a potential pause in its own rate adjustments, creating a clear policy difference that benefits our currency. This makes buying near-term AUD/USD call options a smart move for potential gains. The rise in housing credit confirms the heat in the property market, with CoreLogic data showing that national home values increased by 5.5% through the end of July 2025. This trend is good for major bank stocks, which gain from higher loan volumes. However, we should be careful with rate-sensitive sectors, like real estate investment trusts (REITs), which may face challenges from higher funding costs. The main takeaway for the upcoming weeks is the growing uncertainty around the RBA’s decisions at its September and October meetings. This data complicates their choices, as they need to balance supporting growth with tackling lingering inflation. Therefore, we expect an increase in implied volatility in both short-term interest rate and currency options markets. Create your live VT Markets account and start trading now.

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