The Australian dollar jumped 0.5 percent higher against the US dollar to hit a high of $1.0315after the release of PMI data from China, a key trading partner.
Data compiled by HSBC showed that manufacturing in the world’s second largest economy is on the rise. October’s Flash PMI edged up to a 3-month high of 49.1. This is good news for Australia which exports a large amount of commodities to China.
Also helping the aussie is the view that the Reserve Bank of Australia will probably become less aggressive in the future on monetary easing after domestic inflation data today showed rising consumer prices.
Australia’s CPI in the last quarter rose at a faster rate than predicted to 1.4 percent, up from a previous 0.5 percent. Economists had forecast a 0.9 percent rise.
Much of the contribution to higher consumer prices was due to the introduction of a carbon tax.
With inflation no longer appearing low, and China appearing more stable, there is less chance for the Reserve Bank of Australia to cut rates further. Thus, with the probability of an increase in rates, this helps lift the Australian currency.
The central bank’s next policy meeting will be on November 6. The current benchmark rate is 3.25 percent, and forecasts for the new rate have been set at 3.0 percent.