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Tuesday, the Australian dollar registered strong gains against its major counterparts after the Reserve Bank of Australia Governor Glenn Stevens said the nation's downturn may not be "one of the more serious" of the post-World War II era.
Australia's economy may rebound faster than the central bank forecast six months ago as consumer and business confidence surges, Stevens said.
It appears "that the downturn we are having may turn out not to be one of the more serious ones of the post-War era, in contrast to the experiences of so many other countries," the Reserve Bank chief said in a speech on "Challenges for Economic Policy" in Sydney today. "We can much more easily imagine upside risks to the outlook, to balance out the downside ones, than was the case six month ago," he added.
Stevens left the benchmark lending rate at 3 percent on July 7 for a third month amid signs the lowest borrowing costs in half a century and government spending helped the nation skirt a recession.
"The banks of the United States and Europe are starting down this path on their wholesale issuance, having recognized that it is in their own interests to do so," Stevens told.
He also sounded more hawkish on interest rates, noting that low rates could inflate house prices. Investors hurried to price in chances of a hike in local rates sooner rather than later.
The Australian stock market closed higher today as an upbeat sentiment on the economic outlook lifted consumer-focused stocks such as the nation's top supermarket chain Woolworth.
The benchmark S&P/ASX 200 Index ended at 4,1695, representing a gain of 49.20 points from its previous close. Meanwhile, the All Ordinaries Index closed at 4174.0, up 26.2 points from its previous close.
Currency markets are certainly interpreting the RBA Governor comments as an indication the next interest rate move in Australia will be up, with the Australian dollar climbing to a 10-month high against the greenback, 6-week high against the yen, 7-week high against the euro, 3-week high against the kiwi and a 5-day high against the loonie.
Business confidence in Australia soared in the 2nd quarter to its highest levels since the start of the world economic crisis. The latest National Australia Bank business confidence survey showed today an index reading for Q2 of minus-four points, an improvement of 20 points from the previous quarter.
Meanwhile, the Conference Board's Leading Economic Index for Australia declined in May, the first drop after three months of increases. The board said its Leading Index declined 0.1 percent, thanks largely to lower building approvals and exports of rural goods. The Leading Index now stands at 113.0.
The Australian dollar jumped to 0.8326 against the U.S. currency during early deals on Tuesday. This set the highest point for the Aussie since September 29, 2009. On the upside, 0.852 is seen as the next target level for the Australian dollar. At yesterday's close, the aussie-greenback pair was quoted at 0.8228.
The Australian dollar has risen 3% percent this month and 16 percent thus far in 2009 against the greenback on optimism the global recession will ease.
In early trading on Tuesday, the Aussie climbed to a 6-week high of 79.17 against the Japanese yen. This may be compared to yesterday's close of 78.33. If the aussie-yen pair edges up further, it may likely target the 80.5 level.
The aussie-yen pair soared to an 8-month high of 80.49 on June 11 after a government report showed that Australia lost fewer jobs in May than economists forecast. Although the Australian currency dropped 12% thereafter, it rebounded after touching a 2-month low of 70.80 on July 13. Since then, the Australian dollar has gained 11%.
The Aussie surged up to a 7-week high of 1.7176 against the euro in early deals on Tuesday. The next upside target level for the aussie is seen at 1.715. The euro-aussie pair was worth 1.7310 at Monday's close.
After hitting a 2-month low of 1.8109 against the euro on July 13, the Aussie advanced 4% as there was evidence to show that the global economy was stabilizing, with production picking up in many Asian countries. Moreover, credit conditions showed signs of improving.
Reports showed this month that Australia's business confidence turned positive in June for the first time since December 2007.
Also, Australia's producer prices dropped further in the second quarter, to record the steepest fall since the series first began in the fourth quarter of 1998.
The minutes of the Reserve Bank of Australia monetary policy meeting on July 7 showed that economic activity in Australia was not as weak as expected. At the meeting, the Board decided to leave the cash rate unchanged at 3%, noting that the current stance of monetary policy supported sustainable growth and low inflation, leaving adequate flexibility to respond to developments as and when needed.
The Aussie that closed yesterday's trading at 0.8890 against the Canadian dollar strengthened to a 5-day high of 0.8969 in early deals on Tuesday. If the aussie-loonie pair advances further, it may test resistance around the 0.903 level.
The Canadian dollar gained 2% against the aussie last week and reached a 5-week high of 0.8802 on Friday as the Bank of Canada said that the country's recession was ending as commodity prices and consumer confidence improve, while the pace of the recovery will be muted by a strong currency.
The central bank Governor Mark Carney predicted a turnaround in Canada's economy this quarter, an earlier-than-expected recovery from the worst recession since the 1990s.
In early deals on Tuesday, the Aussie advanced to a 3-week high of 1.260 against the New Zealand dollar. The next upside target level for the aussie is seen at 1.270. The aussie-kiwi pair closed Monday's New York session at 1.2539.
The New Zealand dollar plunged today as New Zealand's trade deficit grew faster than expected in June. Statistics New Zealand reported that the country logged a June trade deficit if NZ$417.0 million.
Most economists were forecasting a June surplus of $265 million on imports of $3.19 billion and exports of $3.47 billion.
There are no significant economic reports scheduled to be released in the European session today.
From the U.S., the S&P/Case-Shiller Home Price Index for May, Conference Board's consumer confidence data for July and the Richmond Fed's Manufacturing index for July are expected in the North American session.
Also, the Federal Reserve Bank of San Francisco President Janet Yellen speaks in Coeur D'Alene, Idaho at 11:30 am ET.
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