Aussie Trade Jumping With Retail Spurs Currency to One-Week High

Australia’s dollar climbed to the strongest in more than a week after data today showed the January trade surplus widened to the most in 2 1/2 years and retail sales rose three times faster than economists forecast.

“The Australian economy is a good story,” said Annette Beacher, head of Asia-Pacific research at TD Securities Inc. in Singapore. “2014 is off to a strong note. Hopefully this will filter quickly into business and consumer sentiment, and we can start fixing that last weak patch in the economy, which is investment.”

The local dollar climbed versus all 16 major counterparts as the statistics bureau reported a A$1.43 billion ($1.29 billion) trade surplus, led by higher iron ore and gold shipments. That followed yesterday’s data showing stronger economic growth, spurring traders to boost expectations the Reserve Bank of Australia will increase the cash rate over the next year, even after policy makers this week signaled a period of interest-rate stability.

The Australian dollar rose 0.3 percent to 90.11 U.S. cents as of 4:44 p.m. in Sydney after touching 90.33, the highest since Feb. 25. Australia’s 10-year yield rose four basis points to 4.1 percent. The yield on debt due in three years, among the most sensitive to interest-rate expectations, climbed to as high as 2.93 percent, a level unseen since Feb. 26.

Australian retail sales surged 1.2 percent in January, the biggest gain in 11 months and more than the 0.4 percent advance forecast by economists, led by higher spending at department stores and cafes and restaurants. Among Australia’s states, New South Wales led gains, with sales rising 2.1 percent, compared with a 0.3 percent decline in the mining hub of Western Australia.

Cuts Working

The data signal that Australian policy makers’ efforts to maneuver the economy through a waning resource-investment boom that helped the nation avoid recession during the global financial crisis are gaining traction. The RBA cut borrowing costs by 2.25 percentage points from late 2011 through August last year to a record 2.5 percent, helping drive up house prices and building approvals.

In Sydney, Australia’s most populous city, house and apartment prices surged 14.1 percent in the year to Feb. 28, a private RP Data-Rismark home value index released this week showed. Approvals to build new dwellings in Australia jumped 6.8 percent in January from a month earlier, according to government figures published March 4.

Aussie Momentum

“Low interest rates are beginning to have an impact; we can see that in the building approvals data which are pushing record highs now and retail activity has also picked up,” said Sydney-based Richard Grace, chief currency and rates strategist at Commonwealth Bank of Australia, the nation’s largest lender. “The improving global economy is, of course, always supportive of the Australian dollar so you can include that in the basket of reasons for why the Aussie has got some tactical upside momentum.”

Gross domestic product rose 0.8 percent in the three months through December after a 0.6 percent gain in the third quarter, according to statistics bureau figures yesterday. Australia’s savings rate dropped below 10 percent for the first time since 2010 as consumers opened their pocket books. Final demand was also highest in New South Wales, the nation’s most populous state.

Rates Outlook

The central bank cut rates to support the economy as a mining boom moves from the employment-intensive investment phase to one of increased supply and higher exports. A Credit Suisse Group AG index shows traders are expecting policy makers to add 14 basis points to the 2.5 percent cash rate over the next 12 months, the most since Feb. 18.

New Zealand’s currency remained higher following a two-day advance as talks on Ukraine between representatives from Russia, Europe and the U.S. bolstered demand for higher-yielding assets.

The MSCI Asia Pacific Index of shares gained 0.7 percent. New Zealand’s kiwi dollar was little changed at 84.24 U.S. cents after rising 0.5 percent over the previous two days. The two-year swap rate, a fixed payment made to receive floating rates, climbed to 3.9 percent, the highest since January 2011.

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