Aussie Rallies After China Inflation Data Boost Trade Prospects

The Australian dollar rallied after consumer prices in China increased more than economists estimated, boosting trade prospects.

The kiwi dollar rose versus most of its major peers as food prices in the nation rebounded. Australian bonds extended gains. Reserve Bank Assistant Governor Christopher Kent said today a weaker currency will help achieving balanced growth and signaled there may be a correction in the exchange rate.

“The Aussie does seem bid quite well,” said Divya Devesh, a foreign-exchange analyst at Standard Chartered Plc in Singapore. “There’s little reason to be pessimistic about China. Compared to January, risk appetite looks much better.”

Standard Chartered Plc revised up its Australian dollar forecast to 91 cents in the first quarter from 87 previously.

Australia’s dollar rose 0.1 percent to 89.92 U.S. cents as of 6:21 p.m. in Sydney, poised for a 0.4 percent gain this week. It added 0.1 percent to NZ$1.0769. New Zealand’s kiwi fetched 83.50 U.S. cents from 83.42.

The yield on 10-year Australian government bonds fell 7 basis points to 4.11 percent from yesterday.

In China, consumer prices rose 2.5 percent in January from a year earlier, compared with a 2.4 percent increase estimated by economists in a Bloomberg survey. Producer price index, a measure of the cost of goods as they leave the factory, fell 1.6 percent, in line with economists’ forecast, a government report showed in Beijing today.

China Imports

China is the biggest trading partner for both Australia and New Zealand. The data follow a report on Feb. 12 that showed imports from Australia rose 12.8 percent, the biggest increase in six months, to a record.

Australia’s statistics bureau said yesterday unemployment rate rose to 6 percent, the highest in a decade. The jobless numbers weren’t too different from what RBA expected, Assistant Governor Kent said in a panel discussion today.

“Lower levels of the exchange rate, if sustained, will assist in achieving balanced growth in the economy and bring about a quicker return to trend growth,” he said. “There are times when the exchange rate does not move in line with what the historical behavior of fundamental determinants would otherwise imply. This suggests that a correction in the exchange rate might be in prospect.”

The MSCI Asia Pacific Index were little changed, after dropping 0.9 percent yesterday.

Moving Average

Commonwealth Bank of Australia, the nation’s biggest lender, expects the Aussie to rise to as high as the 200-day moving average at 92.23 cents in the next month, citing factors such as a softer U.S. dollar, strength in the global economy, and a shift to a more neutral bias by the RBA.

Goldman Sachs Group Inc. continues to expect the Aussie to fall to 88 U.S. cents in six months and to 85 in 12 months.

“Unhedged capital inflows are set to become less A$- positive, which will in turn allow the A$ to reconnect with its weaker fundamentals,” Tim Toohey, Goldman’s head of economics, commodities and strategy research for Australia and New Zealand, wrote in a research note yesterday. “We think it is too early to rule out the possibility of the RBA providing further monetary policy stimulus.”

In New Zealand, food prices increased 1.2 percent in January from the prior month, when they slid 0.1 percent, Statistics New Zealand reported today in Wellington.

To contact the reporter on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net

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