Australian dollar lifts as China stabilises

The Aussie dollar rose sharply today amid a recovery in Chinese share prices and stronger-than-expected employment data for June.

The Australian dollar rose sharply today amid a recovery in Chinese share prices and stronger-than-expected employment data for June.

Still, the gains came despite a 10 per cent drop in the price of iron ore to its lowest level in six years. Economists warned that if the commodity price slide continues, the likelihood of an interest-rate cut by year end would rise appreciably.

At 4:50pm, the Australian dollar was trading at US74.84c, compared with US74.22c late yesterday.

Chinese shares reversed some of their recent losses today, restoring some confidence in Beijing’s efforts to rescue its struggling stock market.

The Shanghai Composite rose 5 per cent at 3683.04, after bobbing between gains and losses Thursday morning. The Shenzhen market rose 3.6 per cent. Both indexes have lost around a third of their value in the past month. Stocks in Hong Kong, which suffered their worst trading session since the global financial crisis yesterday, rose 3.4 per cent.

Locally, Australia’s unemployment rate rose to a lower-than-expected 6 per cent in June from a downwardly revised 5.9 per cent in May. Economists had expected an unemployment rate of 6.1 per cent in June.

The number of people employed rose by 7300, compared with expectations that the number would remain flat, the Australian Bureau of Statistics said.

Economists said Australia job market was starting to look a lot stronger and the Reserve Bank of Australia might need to revise away its current forecast that unemployment will rise to around 6.5 per cent over the next year.

“History shows that the RBA tends not to cut further when the unemployment rate is past its peak. So, at the minimum, today’s numbers are likely to reduce the chance of any near-term cut in the cash rate,” said Paul Bloxham, chief economist at HSBC, Australia.

Still, the outlook for the Australian dollar will be largely dictated by commodity prices and the health of China’s markets and economy.

“It’s early days, but if China looks like going towards 5 per cent growth and bulk commodities keep falling with only modest declines from the Australian dollar, the RBA may well be in play before year end,” said Warren Hogan, chief economist at ANZ.

The of price of iron ore, Australia’s biggest export, plummeted an eye-watering 11 per cent yesterday to $US44.10 a tonne, tumbling well below the decade-low of $US46.70 recorded in April.

Some economists forecast worse to come.

Citi said in a research note that it thought the value of the steelmaking commodity would head into the $US30s in the second half of this year, adding that a glut was expected to rapidly appear.