AUD/USD: Aussie propped up by GDP growth

on Jun 4, 2014

**AUD/USD**, Wednesday June 4: The Australian dollar appreciated 0.5 percent to $0.9285 intraday yesterday but shed some of its gains to close 0.2 percent up at $0.9255. The Aussie extended its gains by almost 0.5 percent earlier today as GDP data released by the Australian Bureau of Statistics beat expectations. However, as of 13:59 BST, Australia’s currency had retraced part of the move and was trading at $0.9277, with the market’s attention returning to a meeting of the European Central Bank and the release of U.S. employment data. Australian benchmark 10-year bond yields moved up 7 basis points to 3.78 percent, heading for the biggest increase since May 22.

Australia’s economy expanded at the fastest rate since 2012 as swelling exports and home building sectors indicated that record-low borrowing costs are sustaining a 22-year expansion despite mining investment losing steam. The world’s twelfth largest economy grew by 1.1 percent for the three months ended March from the previous quarter, faring better than the 0.9 percent gain forecast in a Bloomberg News survey. GDP climbed by 3.5 percent in the first quarter from a year earlier, while the median forecast of economists pointed to a 3.2 percent increase.

For the same period, exports saw a 4.8 percent increase, while investment in housing advanced by 4.7 percent.
“Despite some perceptions to the contrary, the Australian economy is doing well,” Craig James, a senior economist at a unit of Commonwealth Bank of Australia, told Bloomberg. “In fact it’s doing very well. The economy is growing comfortably above its trend or ‘‘normal’’ pace; inflation is under control; interest rates are at historic lows; productivity is solid; and home construction and exports are leading the way forward,” he noted.

“I can’t deny the headline was great but the mix of growth isn’t,” J.P. Morgan chief economist Stephen Walters, told the Wall Street Journal.
The better-than-expected release will give the government more room to deal with budget cuts and an abating natural resources sector, which Reserve Bank of Australia (RBA) Governor Glenn Stevens has identified as impediments to growth. Treasurer Joe Hockey announced reductions to spending on welfare and the public service and a new tax on the wealthy, leading consumer confidence to slump to its lowest level since August 2011, after the budget’s release on May 13.

“The stronger growth evident in today’s numbers is welcome, but the composition of growth continues to highlight challenges faced by the economy,” Hockey said in a statement after the release of the GDP data. “The mining sector will continue to be a major contributor to GDP growth, but this will increasingly come from production and exports rather than construction and investment.”
Faced with waning investment in mining, the RBA cut its rates to a record-low 2.5 percent to prop up consumption and positively influence industries like residential construction.
The Australian dollar is on its way to reaching its highest level since November against its New Zealand peer, after breaking through an important technical resistance level for the first time in over a year. Shyam Devani, a Singapore-based senior technical strategist at Citigroup Inc., the world’s biggest foreign-exchange trader, informed Bloomberg the Aussie may strengthen to NZ$1.1360, the target of a so-called double bottom pattern, after rising above its 200-day moving average of NZ$1.0984. It was the first time the gauge has been breached since March 2013. The Aussie has been appreciating against the kiwi for three months, the longest streak since 2011.
Institutional investors became bullish on the AUD in April for the first time in almost a year. According to data from the US Commodity Futures Trading Commission, the difference in the number of bets on a rise in the AUD compared with those on a fall – also known as net longs – rose as high as 19,462 in the week ended May 20, from net shorts of 65,723 in January.


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