Bloomberg News

Aussie Gains on Faster Inflation, China Manufacturing

October 24, 2012

The Australian dollar climbed against all of its major peers after a private report signaled that a slowdown in Chinese manufacturing is abating, improving prospects for exports to Asia’s biggest economy.

The so-called Aussie snapped a four-day drop after data showed a faster-than-estimated increase in Australia’s consumer price index, easing expectations the Reserve Bank will cut interest rates. New Zealand’s currency was 0.3 percent from a one-month low as Asian stocks extended global declines.

“The Aussie will continue to grind higher,” said Greg Gibbs, a senior currency strategist at Royal Bank of Scotland Group Plc in Singapore. “The CPI and the Chinese PMI are both important data points, and both are better-than-expected,” he said, referring to the purchasing managers’ index.

Australia’s currency added 0.5 percent to $1.0311 as of 4:42 p.m. in Sydney following a four-day, 1.1 percent slide. The New Zealand dollar, nicknamed the kiwi, traded at 81.24 U.S. cents after losing 0.8 percent to 81.16 yesterday when it touched 81.01, the weakest since Sept. 11.

The MSCI Asia Pacific Index of shares declined 0.4 percent, following a 1.4 percent drop in the Standard & Poor’s 500 Index (SPX) in New York.

The upside risk for the Australian dollar is much higher than expected and it could climb above $1.10, Steve Englander, global head of foreign-exchange strategy at Citigroup Inc., said at a conference in Sydney today.

China PMI

HSBC Holdings Plc and Markit Economics said their PMI for China’s manufacturing was 49.1 in October on a preliminary basis, compared with a final reading of 47.9 last month. September’s result was the 11th-straight month below the 50 level that signals contraction, the longest streak in the gauge’s eight-year history.

In Australia, a measure called the trimmed mean gauge of core consumer prices rose 2.4 percent in the three months ended Sept. 30 from a year earlier, the Bureau of Statistics said today. That compares with the 2.2 percent increase estimated by economists in a Bloomberg News survey.

“The market was sort of hoping for a softer-than-expected number and priced it that way,” David de Garis, a senior economist at National Australia Bank Ltd. in Melbourne, said in a Bloomberg Television interview. The Aussie is “looking pretty solid around those $1.02 levels.”

The RBA, which targets average annual inflation of 2 percent to 3 percent, cut its overnight cash rate target by a quarter-percentage point to 3.25 percent on Oct. 2.

Overnight-index swaps data compiled by Bloomberg show traders see a 73.1 percent chance policy makers will lower the rate to 3 percent at a Nov. 6 meeting, compared with a 95.4 percent possibility observed yesterday.

Australia’s bonds declined, with three-year yields gaining as much as 8 basis points to 2.64 percent, the highest since Sept. 24.

Policy Outlook

The Aussie dropped 3.2 percent in the past three months, the third-worst performer among the 10 developed-nation currencies tracked by the Bloomberg Correlation-Weighted Indexes. The yen and dollar had bigger declines during the period, while the kiwi slipped 0.4 percent.

“Our bias is still that further modest easing from the RBA is likely to be seen,” said Callum Henderson, the global head of currency research in Singapore at Standard Chartered Plc.

The Reserve Bank of New Zealand will hold a policy meeting tomorrow. All 17 economists surveyed by Bloomberg News predict the central bank will leave the official cash rate at 2.5 percent, prolonging a period of record-low borrowing costs that began in March 2011.

To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net


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