Dollar firmer in afternoon trade

The local unit was boosted by the best business conditions in nine years.

Australian one dollar coin sitting on a twenty dollar note. Shallow depth of field. Picture: istock

The Australian dollar got a lift on Tuesday from data showing the strongest business conditions in nine years in January.

At 4.20pm (AEDT), the Australian dollar was at US76.77 cents, compared with US76.41c in late afternoon trade on Monday. Overnight in US trading, it hit a low around US76.30c.

It came after National Australia Bank’s business conditions index surged from +9.9 points to +16.2 points in January, a nine-year high. NAB’s business confidence index rose from +5.7 points to a three-year high of +9.8 points.

Economists pointed to global factors as the impetus for the jump as the economy at the local level has been lackluster, with growth contracting in the third quarter and unemployment rising over recent months.

Australian companies are “partaking in a global confidence rally,” said Tom Kennedy, economist at J.P. Morgan.

“We suspect at least some of the recent improvement in the business survey is related to the pickup in business confidence across the developed markets,” he said.

The outlook for Australian business “is likely to remain closely intertwined with offshore political developments, particularly in the US,” he added.

Global markets rallied after the election of US President Donald Trump in November before fading in January. However, the upbeat mood has recently returned after Mr. Trump this month said he would soon unveil a “phenomenal” tax plan.

Markets will be watching Federal Reserve chairwoman Janet Yellen’s testimony before Congress later Tuesday, looking for any signals about a possible interest-rate increase in March.

Also, Australian employment data for January, due out Thursday, has the potential to throw cold water on the local market. Employers were reluctant to hire full-time staff last year, with part-time positions constituting the overwhelming majority of jobs created in 2016. The jobless rate has also edged higher over recent months.

Economists warn that should unemployment head toward 6.0 per cent or higher, from 5.8 per cent currently, the central bank would be forced to consider lowering interest rates further.

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