Aussie Holds Gains After China Manufacturing Data Before RBA

Australia’s dollar held gains from last week after official data on Chinese manufacturing showed an expansion and before the Reserve Bank meets.

The Aussie rose against the yen as swaps trades show 97 percent odds the RBA will keep rates on hold at 2.5 percent tomorrow. Local bonds were little changed after the benchmark 10-year yield dropped to a three-month low last week. The central bank will also release its quarterly statement of monetary policy on Feb. 7. The New Zealand dollar rebounded from a four-month low versus the greenback after the Treasury said the nation is nearing the start of monetary tightening cycle.

“I’m sure as much as one can be that the RBA will not be reducing rates,” said Hans Kunnen, a senior economist at St. George Bank Ltd. in Sydney. “I think the text will confirm the current cycle of easing is over and that could be a positive for the Aussie.”

The Aussie was little changed at 87.50 U.S. cents as of 4:50 p.m. in Sydney from Jan. 31, when it capped a 0.8 percent weekly gain. The currency pair’s one-month implied volatility jumped to as much as 10.8 basis points, the highest since Sept. 30. Australia’s dollar rose 0.2 percent to 89.50 yen. It touched NZ$1.0848, the highest since Jan. 13, before sliding to NZ$1.0787, down 0.4 percent from last week.

The yield on Australian notes maturing in April 2024 was little changed at 4 percent, after dropping to 3.99 percent on Jan. 31, the lowest level since Oct. 30.

Kiwi Climbs

The kiwi climbed 0.3 percent to 81.12 U.S. cents from the end of last week, when it touched 80.63, the weakest since Sept. 11. The currency strengthened 0.5 percent to 82.95 yen.

The official Purchasing Managers’ Index of Chinese manufacturing was at 50.5 in January, in line with economists’ estimates and above the 50 level which indicates expansion, the National Bureau of Statistics and China’s logistics federation said on Feb. 1.

The Australian Industry Group said today its manufacturing PMI slid to 46.7 in January from 47.6 in the previous month. Building approvals in Australia increased 21.8 percent in December from a year earlier, after gaining a revised 23.6 percent in November, Australian Bureau of Statistics reported today. The median estimate of economists surveyed by Bloomberg News was for a 23.4 percent increase year-on-year.

TD Securities Inc. and the Melbourne Institute said consumer prices in Australia rose 2.5 percent in January from a year earlier after a 2.7 percent increase the prior month. The RBA targets inflation in a range of 2 percent to 3 percent on average.

None of the economists in a separate Bloomberg poll expect the central bank to change policy when it meets tomorrow.

Net Shorts

“While not totally closing the door to another easing, the recent data flow will see the RBA take heart from how the economy is responding to accommodative monetary policy and tweak its wording on the monetary policy outlook to reflect even less likelihood they’ll cut anytime soon,” David de Garis, senior economist at National Australia Bank Ltd. in Melbourne, wrote in a note to clients today.

Futures traders increased bearish bets on the Aussie, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the Australian dollar versus the greenback compared with those on a gain -- so-called net shorts -- was 65,723 on Jan. 28, the most since September and compared with net shorts of 64,654 a week earlier.

The Reserve Bank of New Zealand is expected to raise rates in March, New Zealand Treasury said in its Monthly Economic Indicators report. The slack in the nation’s economy that persisted since the 2008-2009 recession “now looks to have largely been used up and we are nearing the start of monetary tightening cycle,” Treasury said.

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