Business conditions boost Aussie dollar

15 February, 2017

The Australian dollar is trading higher today, making a run for the US77c mark before pulling back after strong local data released earlier today.

At 3.09pm (GMT) the Aussie dollar was trading at US76.54c after reaching a high of US76.98c earlier in the day.

The Latest National Australia Bank (NAB) business conditions survey hit the market today at 16, well up on last month’s figure of 10 and marks the highest number since November 2007.

The news according to some analysts may catch the Reserve Bank of Australia’s attention and a rate hike, not cut may now be on the table,

"Consumers expect higher inflation in the period ahead, and on the back of the latest business results it seems that the consumers surveyed are on the money,” noted Craig James, chief economist at Commsec

"The balance has shifted from rate cuts to rate hikes. One swallow does not a summer make, but clearly each data reading needs to be carefully watched from here," he added.

According to historical data, the Australian dollar should be higher than its current position due to the remarkable recovery in the Iron ore price which the Aussie dollar usually follows in tandem but is notably lacking behind.

The reasoning behind this according to JP Morgan chief economist and currency strategist Sally Auld, is that most of the profits generated from iron ore and other commodities are now leaving the country, whereas during the recent mining boom it were being invested in developing more mines,

"When we were in the middle of the mining investment boom, revenue flows were reinvested in Australia into building more mines and employing more people. That was positive for the local economy – it grew above trend and the RBA raised interest rates, which was positive for the currency. She said

"This time revenues are not being redeployed. They're going offshore." She added.

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