AUD/JPY: Aussie Gains as Positive Data Support RBA Views

Upbeat economic data from Australia are foreseen to buttress views that the Reserve Bank of Australia will hold interest rates unchanged at the conclusion of its meeting today. The nation posted its narrowest trade deficit in 10 months in December while home prices inclined by the most in more than two years last quarter in encouraging signs for the Australian economy.

A large fall in imports and rising commodity prices helped reduce Australia’s trade deficit in December. The Australian Bureau of Statistics revealed that the trade deficit narrowed from an upwardly-revised $2.788 Billion in November to just $427 Million in December, the lowest since February last year. The report showed exports rose 3 percent, led by a 12 percent increase in metal ores and minerals and a 5 percent rise in coal, coke and briquettes. Prices of the nation’s key export, iron ore, have also rebounded. Meanwhile, imports slumped 6 percent after industrial transport equipment dropped 35 percent.

A separate report also showed Australian house prices inclined last quarter by the most since June 2010 as lower interest rates spurred buyers back into the market. The House Price Index in the nation’s 8 state capitals rose 1.6 percent in the December quarter, rebounding strongly from the 0.1 percent dip registered in Q3. The figure well surpassed estimates of a 0.3 percent rise on the quarter. Standard variable home-loan costs were at their lowest levels in more than three years by the end of January as the RBA has reduced interest rates by 1.75 percentage points since November 2011.

Such data have seemingly reinforced predominant views that the RBA will keep rates on hold today as an improved global outlook are poised to boost Australian commodity prices further. Reports in recent days from China and the US have been rather encouraging. Chinese manufacturing maintained its expansion while its services industries grew at their fastest pace since August. Over to the US, jobs growth sustained its steady pace in January, adding to signs of recovery in the US economy. As such, investors are pricing in a high 78 percent likelihood that central bank governor Glenn Stevens will leave the cash rate at 3 percent today. Considering these, a long position is advised for the AUD/JPY trades today.

Aviv N. Shapiro is a Senior Research Analyst and Business Development Officer for AlgosysFx.