The Aussie dollar was buffeted yesterday by buying pressure in the wake of the expected decision by the Reserve Bank to leave interest rates on hold – and the weak report on part of China’s huge manufacturing sector from HSBC Markit.
That report was offset by the official survey of manufacturing, which showed a small rise in the pace of activity.
That confused the bears who were ready to pounce on the expected weak report from HSBC.
In fact there could be a suggestion of a steadying in activity in manufacturing, rather than a slide, as all the bears reckon is happening.
These conflicting forces saw the currency dip back to around 92.60 USc after topping 93 USc.
At the same time Australian house prices jumped sharply in March and in the quarter, and Australian manufacturing contracted for another month, although new orders continued to expand.
The dollar peaked at 93.04USc, the first time it’s been over 93 USc since late last November when the RBA started trying to ‘talk’ the dollar lower.
That saw an expanded reference to the currency’s value in the post board meeting statement from governor Glenn Stevens who said in part.
"The decline in the exchange rate from its highs a year ago will assist in achieving balanced growth in the economy, but less so than previously as a result of the rise over the past few months. The exchange rate remains high by historical standards."
The RBA decision and the local data had no impact on the stockmarket which spent most of the day in mostly negative territory.
The strong property market did get singled out in the statement, despite some claims that it could be overheating. A monthly report confirmed that March saw another big gain for prices in most capital cities.
Mr Stevens repeated his conclusion from the February and March meetings’ statements which said, in effect, that interest rates are right where they are now – with the cash rate at 2.5%, and there’s no need to change them.
"Looking ahead, continued accommodative monetary policy should provide support to demand, and help growth to strengthen over time. Inflation is expected to be consistent with the 2–3 per cent target over the next two years.
"In the Board’s judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target.
"On present indications, the most prudent course is likely to be a period of stability in interest rates," the bank concluded.
Certainly the data yesterday on house price growth confirms the bank’s stance (the manufacturing data remains contradictory).
Data building approvals for February (today) and building approvals and trade (both on Thursday) will confirm that the economy remains on track – not booming, but not going bust.
Home prices jumped 2.3% last month, thanks to big rises in the Sydney and Melbourne markets which remain the drivers of the present boom.
Over Australia’s eight capital cities the total growth in house prices for the March quarter was 3.5%, according to RP Data Rismark.
Melbourne recorded the strongest growth, with prices soaring 5.4% in the first three months of this year, while Sydney saw a rise of 4.4% for the quarter and, surprisingly, Hobart reported a 4.7% jump. Brisbane rose 1.5%, Adelaide by 1.2%, Darwin by 2.8% and Canberra by 2%.
Perth saw prices down 0.6% in the three months to March, which was a surprise.
And Australian manufacturing contracted in March, dipping 0.7 points to a reading of 47.9 (a reading of 50 is the dividing line between expansion and contraction).
New orders rose 2.3 points in March to 52.3 last month, but manufacturing production slipped to 49.2 points.
Employment in the manufacturing sector fell 2.4 points to 50, which was steady.
Food and beverages were one of the four sub-sectors to expand in March.
The other three were petroleum, coal, chemicals and rubber products, non-metallic minerals, and wood and wood paper products.
