RTTNews - Tuesday during early deals, the Australian dollar jumped to a new multi-week high against its Canadian counterpart as the minutes of the Reserve Bank of Australia's May 05 meeting released today showed that the Australian economy is showing signs of improvement.
Against the currencies of Europe, US and Japan, the Aussie strengthened to new multi-day highs during this time period.
The Reserve Bank of Australia decided against cutting interest rates on signs that record policy easing and government stimulus are taking effect. Rate cuts by almost by 125 basis points since December 2008 and 4.25 percentage points between early September and April to 3% revived investor confidence. The current rate of 3.00% stands at a 49-year low.
The minutes showed members finding signs that Australia's economic stimulus was having a beneficial effect, although the felt substantial growth was not expected to resume until around the end of the year. Higher unemployment and falling inflation were seen for the coming year.
On the global level, the minutes showed a wide range of economic data generally pointed to some improvement in confidence and economic activity in a number of countries, most notably in Asia. The minutes showed the evidence was accumulating that the maximum rate of global economic contraction may have passed.
Members also took note of a much better tone in financial markets, with strong recent rises in share prices and noticeable declines in credit spreads, with business able to raise more debt in capital markets. The RBA board felt sentiment remained fragile, and could easily be disturbed by adverse news.
The Reserve Bank of Australia Governor Glenn Stevens said in a speech that the global economy may have started to turn the corner on recovery and may rebound by the end of the year.
Stevens added that it was too soon to say for sure if the rebound had begun, and that any global upswing will feature slow growth. There may yet be some pain, he said, because domestic policies can only do so much to combat the slowdown.
Recent reports suggested increased investor's confidence in the economy. The nation's jobless rate eased to 5.4% in April, defying expectations for a 5.9% rise, the retail sales were up 2.2%- well above analyst expectation that called for a 0.5 percent gain following the 2 percent decline in February. Australia also posted a merchandise trade balance of A$2.498 billion in March, higher than the A$2.11 billion balance reported for February, and was also above the A$1.7 billion balance projected by most economic analysts.
The Australian government in its annual budget forecast a record deficit for 2009/2010 as measures to stimulate the contracting economy raised government spending.
The government plans to invest A$22 billion in infrastructure to improve the quality, adequacy and efficiency of transport, communications, energy, education and health sectors. The budget paper said the Government's investment in nation building infrastructure will support an average of around 15,000 jobs each year, at around 18,000 in 2011-12.
The currencies of Australia and New Zealand are also climbing on the back of strong stock markets. Asian markets are trading with strong gains today, on positive cues from Wall Street and on hopes of a global economic recovery.
The Australian dollar jumped to its highest level since April 14, 2009 against the Canadian dollar during Tuesday's early trading. At about 12:15 am ET, the Aussie-loonie pair hit as high as 0.8938, compared to 0.8911 hit late Monday in New York. On the upside, the Aussie may likely find resistance near the 0.912 level.
The Australian dollar also climbed to a 6-day high against the currencies of U.S. and Japan during Tuesday's early deals. The Aussie hit highs of 0.7691 against the dollar and 74.25 against the Japanese unit, compared to Monday's closing values of 0.7660 and 73.78, respectively. If the aussie strengthens further, the Aussie-dollar pair may likely target the 0.771 level and Aussie-yen pair may target 76.2 level.
The dollar and the yen are weakening against other major currencies as investors opted for higher-yielding assets. In carry trade, speculators get funds in a country with low borrowing costs and invest in one with higher returns, earning the spread between the two. The risk is currency fluctuations erase profits between the two rates.
The Australian dollar climbed to an 11-day high of 1.7663 against the euro during Tuesday's early Asian trading, compared to Monday's closing value of 1.7714. The next upside target for the Aussie is seen around the 1.749 level.
Investors now look ahead of the ZEW survey reports from Germany and Euro-zone for May and the Euro-zone construction output report that has been slated for release at 5:00 am ET.
Turning to the US, a report on housing starts is slated to be released at 8:30 am ET. And at 1:15 am ET, Minneapolis Federal Reserve Bank President Gary Stern is due to speak to the Willmar Lakes Area Chamber of Commerce in Willmar, Minnesota.
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