Dollar rises on back of China trade boom
Markets pushed the currency to its highest level in weeks on Thursday, as official figures showed Australia had benefited from a surge in shipments of commodities to its biggest trading partner in the final month of 2012.
With iron ore prices also taking off this week, analysts said the signs of Chinese strength suggested the Reserve Bank would leave the cash rate on hold at 3 per cent next month.
In a positive sign for the world's second-largest economy, the figures showed a 14.1 per cent jump in exports in the year to December, up from just 2.9 per cent in November, exceeding most analysts' forecasts.
Chinese imports were also up 6.1 per cent in the year - including a 7 per cent jump in imports from Australia - suggesting solid domestic demand.
The dollar rose more than half a cent to US105.45¢ on Thursday afternoon.
The global co-head of currency strategy at NAB, Ray Attrill, said investors had piled into the Aussie after the strong trade figures suggested China's economic growth rate had probably picked up from 7 per cent late last year.
"It's taken off like a rocket," he said of the currency.
"The China trade numbers have punched the lights out in relation to what economists' expectations were in all respects."
Significantly for Australia, iron ore imports were up 10.7 per cent over the year to December.
"It seems to suggest that the Chinese growth engine has revved up towards the end of last year," Mr Attrill said.
While the trade numbers are the latest sign of stronger activity in China, the news on Australia's construction industry was less positive.
The number of building approvals granted for private-sector houses - which points to future activity in construction - fell 0.3 per cent in November, the Bureau of Statistics said. This occurred despite the Reserve Bank cutting the cash rate in October.
In total, residential building approvals rose by 2.9 per cent, the ABS said, although high-density housing - which covers apartments - jumped 10.1 per cent.
Commonwealth Bank economist Diana Mousina said the figures showed the housing market was experiencing a slow recovery, although it would take some time to gather momentum.
Despite lingering doubts over weakness in non-mining companies, investors pared back the odds of a February interest rate cut to 35 per cent from 42 per cent, Credit Suisse numbers showed.
Nomura's interest rate strategist in Australia, Martin Whetton, said the market was not pricing in a full 25-basis-point cut in the cash rate until April.
"It's pushed the expectations out and I think we are going to see that if the data continues to perform strongly in China," Mr Whetton said.
The ABS figures showed the growth in building approvals was centred around Victoria, which saw an 8.7 per cent rise during November.
All other states recorded a fall in approvals, with South Australia, down 13.9 per cent, and Tasmania, dropping 7.7 per cent, the worst performers.
Frequently Asked Questions about this Article…
The Australian dollar jumped after official Chinese trade data showed a sharp improvement — exports were up 14.1% year‑on‑year to December and overall imports rose 6.1%. That included a 7% increase in imports from Australia, and stronger commodity demand (especially iron ore) pushed investors into the Aussie currency.
The article reports the Australian dollar rose more than half a cent to about US105.45¢ (105.45 US cents). For everyday investors, a stronger Aussie can affect returns on offshore investments, import prices, and the share prices of exporters and resource companies.
China’s figures showed a 14.1% jump in exports in the year to December (up from 2.9% in November) and 6.1% growth in imports, including a 7% rise in imports from Australia. Those numbers matter because they signal stronger Chinese demand for commodities — a key driver of Australian export earnings and the performance of mining stocks.
Iron ore prices 'took off' that week and iron ore imports into China were up 10.7% year‑on‑year to December. The combination of rising iron ore prices and stronger shipments to China supported the Australian dollar and reinforced investor expectations of stronger resource sector performance.
Analysts in the article suggested the strong China data made it more likely the Reserve Bank of Australia would keep the cash rate on hold at 3%. Market odds of a February cut fell (Credit Suisse showed odds down to 35% from 42%), and Nomura’s strategist said markets weren’t pricing a full 25 basis‑point cut until April if data continued to perform well.
The article said private‑sector house approvals fell 0.3% in November, even after the October cash rate cut. Overall residential building approvals rose 2.9%, driven by a 10.1% jump in high‑density (apartment) approvals. Commonwealth Bank economist Diana Mousina described the housing market as experiencing a slow recovery that will take time to gather momentum.
The ABS data showed growth in building approvals was concentrated in Victoria, which recorded an 8.7% rise in November. All other states recorded falls, with South Australia down 13.9% and Tasmania down 7.7% — the weakest performers in that month.
Based on the article, investors should keep an eye on forthcoming Chinese trade data and iron ore price moves, Reserve Bank rate decisions and market pricing for rate cuts, and domestic construction indicators such as building approvals. These factors can influence the Australian dollar, commodity and mining stocks, and the outlook for the housing sector.
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