This report is a pure Gem covering Australian property markets and Banks but also covers global capital flows. I would even argue that this framework can be extended to Canada also because of similarity to Australia ( safe haven flows)
Just how big a role Australia’s property market plays as an international safety asset – and especially the sequencing effect the Australian Dollar has in relation to this. Typically the AUD will immediately sell-off at the first sign of stress in the world (thereby discounting risks in the Australian economic system and acting as a bit of ‘shock absorber’), but then subsequently in the year to come the domino effects of such global stress causes capital to become unsettled in the world and looking for greener pastures – some of this marginal capital flow sees the relative stability of Australia (which by now has a cheaper currency also, hence the sequencing effect) and so finds its way into Australia, thereby enabling the banking/credit system to further fund itself and also the property market to be bid. The basic dynamic is simply this: stress in the world leads Australia’s property price growth by up to 12 months – this is due to the AUD sequencing effect, capital flows seeking ‘relative’ safety in Australia and an inflationary impulse of a weaker AUD on asset markets.