August 2, 2016 / 2:46 AM / 3 years ago

Australia trade, housing data add to case for rate cut

* Economy likely slowed in Q2 as net exports flag

* Approvals to build new homes slip unexpectedly in June

* Market wagering RBA to cut interest rates later Tuesday

By Wayne Cole

SYDNEY, Aug 2 (Reuters) - Australia’s economy likely slowed last quarter as net exports came off the boil after a very strong start to the year, while a second month of falls in approvals to build new homes pointed to an eventual slowdown in housing.

Tuesday’s disappointing data only added to the case for another cut in rates when the Reserve Bank of Australia (RBA) announces the result of its August policy meeting at 0430 GMT.

Market pricing implies a 70 percent probability of a quarter point cut in the cash rate to an historic low of 1.5 percent <0#YIB:>. The majority of analysts polled by Reuters also favour an easing, which would be the second so far this year.

“The call will be very close,” said Bill Evans, chief economist at Westpac. “However, our overriding view is that the inflation environment has deteriorated so quickly that a further move would be the best policy for now.”

The headline consumer price index slipped to 17-year lows in the June quarter and core inflation was stuck at an all-time trough of 1.5 percent, well short of the central bank’s long-term target band of 2 to 3 percent.

While the economy did outpace forecasts by growing 1.1 percent in the first quarter of the year, that was largely thanks to a huge contribution from net exports which looks unlikely to be repeated.

Figures from the Australian Bureau of Statistics out Tuesday showed the country’s trade deficit widened sharply to A$3.2 billion ($2.4 billion) in June as exports fell 1 percent while imports rose 2 percent.

For the three months to June as a whole, analysts now suspect net exports added only a little to economic growth.

Another source of strength for the economy has been a boom in home building, fuelled in large part by record low mortgage rates. Home construction alone added 0.4 percentage points to economic growth in the year to March.

While the pipeline of new work remains historically high, there are signs the market has plateaued for now. Approvals to build new homes slipped 2.9 percent in June to a seven-month low, leaving them down 5.9 percent on a year ago.

That comes as a surge in new home supply over the last few years takes some of the steam out of house prices.

Figures from property consultant CoreLogic out this week showed annual growth in home prices for Australia’s capital cities slowed to 6.1 percent July, down from 8.3 percent in June and a long way from last year’s peak above 11 percent.

“The recent moderation in the rate of capital gains should be viewed as a positive sign that growth in dwelling values may be returning to more sustainable levels,” said CoreLogic’s Asia Pacific research director Tim Lawless. (Reporting by Wayne Cole; Editing by Sam Holmes)

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