China data lifts Australian dollar to six-day high

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This was published 9 years ago

China data lifts Australian dollar to six-day high

By Scott Parker

The Australian dollar hit a six-day high on Tuesday after China posted stronger than expected economic data and the Reserve Bank of Australia released its October minutes.

The Aussie rose as high as US88.29¢ in early afternoon trade, following the release of Chinese data, which showed that third-quarter gross domestic product grew 7.3 per cent year on year, while industrial production rose 8 per cent over the year through in September. Both numbers were slightly ahead of market expectations.

In late trade, the dollar retreated slightly but still held above US88¢.

Today's data confirms that a "Chinese hard landing" remains a tail risk at this stage, said TD Securities currencies strategist Annette Beacher.

"GDP growth in 2012 and 2013 was 7.7 per cent, and 2014 looks set to achieve the official government target of 7.5 per cent," she said. "Selective provision of liquidity by the Peoples Bank of China keeps hopes alive for more broad-based stimulus, but we expect these to remain unfulfilled."

Steady Chinese GDP growth (plus the odd upside surprise) was supportive for commodities and the Australian dollar, Ms Beacher added.

The RBA's October meeting minutes were also released on Tuesday with market commentators paying particular attention to any adjustments in language concerning both international and domestic economic indicators.

October's decision to keep the cash rate unchanged at 2.5 per cent mentioned international factors such as a weak Chinese property market and a further decline in important Australian commodity prices as "a challenge in the near term".

On the domestic front the decision said a significant decline in resources sector investment spending and volatile labour market data were areas of concern.

The RBA has made no secret of the fact it feels the Australian dollar is overvalued and would like it lower in order to make the country's exports more competitive and generate more tourism, but this looks unlikely in the near future.

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A combination of weaker than expected US economic data, continued weak European data and a significant amount of Asian interest in the Australian property market continues to keep the Aussie buoyant.

At the Commonwealth Bank's 7th Annual Australasian Conference in Sydney, chief currency and rates strategist Richard Grace said he thought the US dollar was currently overvalued and forecast the Aussie back up at the US90¢ mark before the end of the year.

"In my view I think the US dollar has run way too hard, way too early in anticipation of a lift in the Fed funds rate," Mr Grace said.

"It appears that the US dollar is undergoing a spike higher, similar to what it did some 12 or 18 months ago when the then Fed chairman Ben Bernanke announced the US central bank was going to administer quantitative easing."

Mr Grace also said the market wasn't pricing in a Fed funds rate rise until February 2016, "some 15 months away".

He said the US dollar was overvalued across all currencies and won't just depreciate against the Australian dollar but also the euro and the pound.

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