SCOREBOARD: Australian dollar stunner

The Australian dollar punched through 1.05 yesterday and in last night's session almost hit 1.07, finally managing to do so this morning – currently the Australian dollar is at 1.0711 or about 128 pips from late yesterday arvo. There are plenty of reasons to love the Aussie at the moment, not least of which is our favourable yield advantage, the fact that we are not printing money and have a set of public accounts most advanced economies can only fantasise about. Then there's that commodity price surge, and we got some news yesterday that would certainly have supported Australian dollar bulls. Namely, we found out that our export prices continue to push higher, rising 5.2 per cent in the first quarter and 21 per cent over the year – so our terms of trade is pretty much at a record.
 
All good news and for last night, it looks like commodity prices were again a key factor pushing the Australian dollar higher. Crude spiked 2.8 per cent on the WTI ($111.35), Brent was up 2.1 per cent ($123.9) and copper rose 2.6 per cent. Gold didn't do much but is still hanging on to the $1500 mark. Of course the other key factor driving the Aussie higher, in fact most of the majors higher, was generalised US dollar weakness. Punters dumped the dollar index overnight, which fell 0.6 per cent, despite what was pretty good housing data. Existing home sales rose 3.7 per cent in March, which was stronger than the 2.5 per cent that was expected. At 5.1 million, sales are only about 10 per cent below average and mortgage application data suggests demand should continue to rise. Applications rose by 5.3 per cent in the week to April 15, with new purchases up 10 per cent. Over the last month, new purchases are up about 2.5 per cent.
 
The reason the US dollar is getting dumped (the euro was up 137 pips to 1.4521, the British pound up 68 pips to 1.6407, and the yen at 82.47 from 82.9) is because we know that no matter how good the data is, the Fed has no intention of raising rates or stopping the printing press. The only surprise about last night is that US treasuries still can't manage to sell off, which makes me wonder who is buying. I suspect there is a lot of official support there. Despite a general risk bid, treasuries did little with the 2-year unchanged at 0.66 per cent, the 5-year yield rose 2bps to 2.11 per cent and the 10-year was up 2bps to 3.41 per cent. Aussie futures were off a couple of ticks with the 3s at 94.84 and the 10s at 94.44.
 
As for equities, well as I've already mentioned, the macro economic backdrop is great and getting better. Throw in strong commodity price gains and fantastic earnings results and there's your rally just there. At Wall Street's close, the S&P500 was up 1.35 per cent (1330), the Dow was 186 points higher (12453) and the Nasdaq rose 1.5 per cent (2802). Leading the S&P higher were tech, energy and industrials, although all sectors rose. The SPI for its part was up 0.9 per cent (4909) which is feeble compared to European gains (1.7 per cent-2.98 per cent).  
 
Bits and pieces otherwise. German producer pries were a little softer than expected, rising by 0.4 per cent in March (0.8 per cent expected) to be 6.2 per cent higher annually. Then in the UK, the BoE minutes show the MPC voted 6:3 to keep rates steady and 8:1 to maintain QE at £50 billion – Posen still wants to print more. Other than that, rumours about a Greek restructuring continue to do the rounds, but Spain's auction of 3.4 billion 2021 and 2024's met with strong demand (yields at 5.47 per cent from 5.16 per cent for the 10-year) with cover at 2.1 from 1.8.
 
Looking at the day ahead, we get Australian producer prices at 1130 AEST and with the bounce in commodity and trade prices it would be surprising if this was a soft result. New Zealand migration and consumer confidence comes out before that at 0845 AEST and 1100 AEST respectively. Then tonight just watch out for the German IFO survey, US initial jobless claims and the Philly index.
 
That's the lot, please note that will be no AM report over the Easter period; I'll be back on Wednesday 27 April, just in time for the first quarter CPI figure.

Adam Carr is senior economist at ICAP Australia. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.