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• RBA responds to housing data.
• Greece sovereign debt risk still directing play.
• The AUD is the week’s underachiever.

A rate hike in May was still doubtful as of last week, however RBA Governor Glenn Stevens was left with little alternative than to tighten the country’s monetary policy belt after Monday’s bullish House Price Index figure of 20% year on year. The quarterly figure was also higher than market estimates and came off the back of last week’s high CPI figure. Governor Stevens noted that interest rates were now roughly “average”, meaning that he’ll place a higher weighting on above trend growth going into the June board meeting, rather than the slashes made to the cash rate in 2008. Above trend growth is being fuelled by resources-led capital expenditure and higher commodity prices. Other data out this week has supported economic growth locally with the Aig Performance of Manufacturing Index (59.8) and the leading indicator, Building Permits (51.6%), both significantly higher than market estimates.

News from Greece has generally had the market ham-strung with sentiment surrounding sovereign debt directing the market. Amongst downgrades for Portugal and Spain has been speculation that Greece is in dire straits when it comes to meeting EU covenants surrounding the EUR110B bailout package. The strings attached to the lifeline include cutting the budget deficit to 3 percent of GDP by 2014, which is considered optimistic given the current deficit is 13.6%. This is a hard-sell for countries like Germany, particularly with sizeable civil servant protests occurring at the same time they’re negotiating the bailout package.

Despite strong economic data for Australia coupled with a strong lead by Wall Street on Monday and a rate hike on Tuesday, the local currency has been an underachiever this week. This is largely attributed to sentiment surrounding both the cash-rate now being at the 10-year “average” and the risk attached to the Greek bail-out package. Every time the bond package falters, European sovereign debt prices, global markets, risk appetite and the AUD lose their sprint. The RBA board didn’t follow suit however and continued the cash-rate’s push higher.