Australian dollar rallies on upbeat data

The dollar rallied today as local investors returned from a three-day weekend to be greeted by encouraging news on the economy.

The Australian dollar rallied today as local investors returned from a three-day weekend to be greeted by encouraging news on the economy and favourable China data.

At 5:15pm, the Australian dollar was trading at US76.67c compared with US76.10c late yesterday. The currency has recouped most of the losses posted on Friday on news of solid US employment data.

Trading over coming hours is likely to be subdued with Reserve Bank governor Glenn Stevens set to speak tomorrow. Mr Stevens hasn’t indicated the topic of his speech.

China’s consumer inflation in May was at its weakest level in four months, official data showed, giving the country’s central bank more scope for further policy easing amid slower economic growth, traders said.

China is a major trading partner for Australia, buying vast amounts of iron ore, and events in Beijing can have a direct impact on life in Brisbane.

China’s consumer price index rose 1.2 per cent in May from a year earlier, slower than a 1.5 per cent year-over-year rise in April, data from the National Bureau of Statistics showed.

China’s central bank in May cut its benchmark interest rates for the third time in six months in a bid to boost the struggling economy. Yet another soft data point builds the case for more easing measures, economists said.

The China data “may insinuate scope — perhaps even a need — for policy officials in China to do more to stimulate the local economy and spur imports of Australian-mined raw materials,” said John Kicklighter, chief currency strategist at FXCM.

Locally, a major bank survey showed business confidence and conditions rising, while data on housing loans showed the sector remains one of the bright spots for the economy, which was shown last week to be growing slowly overall.

NAB said its business confidence index, which showed an index rise of plus 7 in May from plus 3 in April, was the strongest reading since August 2014.

Alan Oster, NAB’s chief economist, said the RBA had finished cutting interest rates if the optimism in the survey was borne out.

The number of home loans issued in April rose unexpectedly, driven by stronger demand for mortgages among both investors and prospective owner-occupiers.

Lending to home buyers climbed by 1 per cent from March, government data showed today, supported by record-low interest rates that propelled a 2.6 per cent rise in the value of loans to property investors.

It was the third month in a row that the number of home loans has risen.

Investor lending for housing is under the microscope of policy makers.

The Treasury last week warned that a price “bubble” exists in Sydney, while Australia’s banking regulator has moved to curb lending to investors, to whom about half of all mortgages are currently being sold.

Economists surveyed ahead of the announcement expected a 2 per cent fall in the number of home loans issued.