Dollar rises on confidence wave

The local unit has held onto its gains in late trade, boosted by the sharp rebound in consumer confidence.

The Australian dollar was stronger in late afternoon trade, supported by firmer global equities overnight and a sharp rebound in consumer confidence.

At 6.20pm GMT, the Australian dollar was trading at US73.40 cents compared with 73.22c at the same time on Tuesday.

Consumer confidence rose to its highest levels in nearly two-and-a-half years in May, following an interest-rate cut at the start of the month.

Meanwhile, the Westpac/Melbourne Institute index of consumer sentiment rose 8.5 per cent in May from April, to 103.2 points.

It followed the Reserve Bank of Australia’s decision last Tuesday to cut its key interest rate to a record low of 1.75 per cent on May 3.

“Our analysis indicates that the dominant driver of the boost to confidence has been the rate cut,” said Westpac chief economist Bill Evans. “Supporting this view has been a stunning 15 per cent increase in the confidence of those respondents in the survey who currently have a mortgage.”

The Australia Bureau of Statistics also reported a small drop in housing finance approvals in March. Approvals fell a seasonally adjusted 0.9 per cent in March from February, compared with an expected 1.5 per cent drop. The value of loans for investment housing rose 1.5 per cent in March from February, the ABS said.

Economists said the data suggest there is some life returning to the housing sector

“The housing market remains solid in 2016, and last week’s RBA rate cut provides some further growth stimulus for the coming months,” said David Gradwell, economist at ANZ.

Sales by auction are still running at a reasonable pace and house prices are increasing, especially in the key Sydney and Melbourne markets. Another rate cut in August would provide further support to the housing market outlook, he added.

Wall Street Journal