BS: Strong investment in third quarter boosts dollar
THE Australian dollar was higher late yesterday, buoyed by news of surging business investment in the third quarter, but more worrying news from Europe brought a reality check in late trading.
Business investment rose a massive 12.3 per cent in the third quarter, outstripping an expected rise of 7 per cent. Economists said the country was on track to post economic growth of more than 1 per cent in the third quarter compared with a quarter earlier.
Economists said the data argued strongly against a cut in interest rates at the central bank's policy meeting next Tuesday, pushing the Australian dollar to its highest levels since November 18.
"From a policy perspective, today's data confirms the RBA's assessment that resource investment is picking up very strongly, with much more to come," UBS chief economist Scott Haslem said.
But there remain soft spots in the economy, with news earlier yesterday that house prices had extended a year-long drop in October. Credit growth was also flat for the month.
"It is clear that at present the housing sector is going nowhere. House prices have fallen for 11 out of the past 12 months," Commonwealth Securities chief economist Craig James said.
Statements by eurozone finance ministers that they had agreed to the terms of the proposed European Financial Stability Fund also boosted confidence in early trading, traders said.
But it was not long before the mood soured. A report suggesting G20 finance ministers may not meet before the end of the year jolted confidence and reversed gains.
The lack of a solution to the European debt crisis had called into question whether the G20 ministers would gather to discuss bolstering the International Monetary Fund's resources, a G20 official said.
At 5pm AEDT, the Australian dollar was trading at US99.92c, up US0.23c from Tuesday's close.
It was also higher against the Japanese yen.
Retail trade data for October to be released today will be the next local focus. A strong result could kill off talk of an interest rate cut by the Reserve Bank next week.
A survey of economists by Dow Jones on Friday showed close to 80 per cent expected the RBA to keep its cash rate target at 4.5 per cent.
