The aussie jumps on RBA minutes and China data

The Australian dollar is slightly stronger today on the back of encouraging Chinese economic data and a relaxed attitude at the RBA. The bank wasn’t as aggressive about the possibility of a weaker exchange rate as the market was expecting. In fact, the board postulated that the moves by Tokyo to stimulate growth (weaken the yen) in the Japan are putting upward pressure on the aussie.

The RBA blames the BoJ for the strong aussie

At the end of last month the BoJ radically expanded its already massive QQE program, with the bank now looking to buy around $60 billion a month. Tokyo also announced that Japan’s huge government pension fund would be allocating more capital towards foreign bonds and equities.

According to the RBA this threatens to unleash a wave of capital, most of which may find its way to more attractive yielding investments. The relatively strong yield offering in Australia means that the possible large inflow of capital may support the aussie against falling commodity prices and general weakness throughout the Australian economy.

China’s property price deflation may be slowing…

Later on in the session, China released property figures for October. Average new home prices fell in 69 of 70 the cities surveyed, which was the same as the prior month. The encouraging news was that the National Bureau of Statistics noted that price declines have moderated, which is consistent with a private sector survey released yesterday. This is likely to ease some market fears about the threat of a complete collapse in China’s property market, which could, in turn, result in a global property meltdown.

AUDJPY

Just to empathise the RBA’s point - over the last month the yen has lost around 8.8% against the Australian dollar. AUDJPY is now at levels that haven’t been seen in over seven years. The fuel behind the pair’s rally has been widespread yen weakness on the back of a very dovish BoJ and a soft local economy. While the pair is starting to look overbought, the long-term path of least resistance remains to the upside, although we cannot rule out a period of technical retracement in the short-term.