Australian dollar spikes as Chinese economy shows signs of life

The Australian dollar has pushed above 79 US cents for the first time in a month on the back of some strong Chinese data and easing rate hike expectations in the US.

At 7.00am AEDT on Thursday, the local unit was trading at 78.92 US cents, up from 78.88 cents on Wednesday. Early on Thursday morning, it peaked at 79.03 US cents, the currency’s highest level since January 29.

The Australian dollar hit a four-week high of US78.89¢ on Wednesday afternoon on the back of positive Chinese manufacturing data and indications from the US Federal Reserve that interest rates would stay on hold.

US Federal Reserve chairwoman Janet Yellen said on Tuesday night it would be several months before the Fed expects to boost interest rates, comments which boosted the Aussie US1¢, from US77.5¢ to US78.5¢ before noon.

The Aussie then spiked further on news that China’s mammoth factory sector reached a four-month high in February.

The flash HSBC/Markit Purchasing Managers’ Index inched up to 50.1 in February, just above the 50-point level that signifies growth.

Economists polled by Reuters had forecast a reading of 49.5; little changed from January’s final PMI of 49.7.

“Chinese flash PMI came out and it’s above 50, showing that the Chinese economy has expanded. Output and new orders are all increasing at faster rates,” ThinkForex senior markets analyst Matt Simpson said.

“It’s also the fact that we had Janet Yellen talking last night. She wasn’t as hawkish as some people wanted. That had a weaker effect on the US dollar and that carried on Wednesday morning. The Chinese PMI was an added bonus and it gave the Aussie a leg up.”

The Australian Bureau of Statistics said on Wednesday the value of total construction, seasonally adjusted, slipped 0.2 per cent in the quarter to $50.35 billion.

For the year, the fall was 4.8 per cent.

However, the figures were better than market expectations and the dollar remained steady.

“It was actually good because analysts were expecting it would be a lot worse than that,” Mr Simpson said.

He said currency traders were anticipating further comments on Wednesday night from Ms Yellen and European Central Bank president Mario Draghi.

Meanwhile, fewer currency traders were expecting the Reserve Bank of Australia to cut interest rates next week, National Australia Bank’s head of FX strategy, Ray Attrill, said.

“The odds of a cut have come in quite sharply over the last week or so,” Mr Attrill said. “When we had the jump up in the unemployment rate earlier this month, the market priced in a 75 per cent chance of a 25 point cut next week.

“That has since come in on the back of the February Reserve Bank board minutes published last Tuesday, which suggested it was a line-ball call whether to cut in February or wait until March. At the moment, a rate cut is 39 per cent priced in.”