Wednesday, 6 June 2012

Australian Dollar Up As Economy Races In 1Q

The Australian dollar climbed sharply Wednesday as Australia boasted the strongest economic growth in the developed world in the first quarter.

Expectations that the world's major central banks are moving steadily toward some form of coordinated stimulus for the global economy also gave the Aussie dollar a boost.

Traders said that such was the strength of the economy in the first quarter that it argued firmly in support of the RBA remaining sidelined in coming months, especially after successive interest rate cuts in May and June, economists said.

Strong mining investment and consumer spending resulted in a 1.3% rise in gross domestic product in the first quarter from the previous three-month period, data released Wednesday by the Australian Bureau of Statistics showed.

Annual gross domestic product growth in the 1.4 trillion Australian dollar (US$1.38 trillion) economy was 4.3%, the fastest pace in over four years.

"The high Australian dollar has been a part this story, as it has pushed down consumer goods prices, allowing households to buy greater volumes. Indicators of inflation in the national accounts are generally quite low," said Paul Bloxham, chief economist at HSBC, Australia.

At 0645 GMT, the Australian dollar was at US$0.9837 from US$0.9791 late Tuesday, and at Y77.59 from Y76.78.

Ahead of the GDP report, the Australian dollar was already rising on an article in the Wall Street Journal suggesting the U.S. Federal Reserve is ready to consider further stimulus for the world's largest economy.

The column by Fed watcher Jon Hilsenrath said given weak U.S. data, market strains and the deepening euro crisis, the Fed could indicate to markets its willingness to act.

Looking ahead, Australian markets will focus on May employment data on Thursday. Any hint of strength in employment growth will add to the view that the RBA has done enough to cushion the economy against possible shocks from overseas.

But a collapse in confidence in Greece is likely to extinguish the flame of growth in Australia, economists said.

"With global uncertainties weighing on confidence, national income crimped by a falling terms of trade, the housing sector in poor condition, with house prices continuing to contract modestly, and jobs growth likely to falter, this burst of consumer spending is unlikely to be sustained," said Huw McKay, senior economist at Westpac WBC.AU -1.17% .

"Accordingly, the recent rate cuts are fully justified and the need to go even further remains. The test now will be how forward looking the authorities are prepared to be in the face of this spending burst," Mr McKay said.

Write to James Glynn at

Write to James Glynn at