Australian dollar recovers after positive economic data

The Australian dollar bounced back after lingering on the low side for a month as promising economic data pushed the market short. However, bearish market condition prevails as the Australian floods 2010-2011 impact continue to worry investors.

From a low of 98.03 US cents on early trade today, the Australian dollar was buying 98.53 US cents in the early afternoon trade.

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In early trade, the Australian dollar exchange rate against yen went from 82.10 to 81.97 and from $1.3128 to $1.3181 against the euro. The exchange rate followed its six-week fall against the New Zealand dollar with a low of $NZ1.2908 before firming at around $NZ1.2938.

Heavy selling of the Australian dollar currency has been happening in the market as investors are gripped with worries on the adverse economic impact of the increasing devastation brought by the Australian floods.

Short-covering occurred upon Wednesday’s release of data from important industries showing stronger than expected figures ahead of the floods.

In spite of the increase in interest rates, home loans went up to 2.5 per cent in November. The unexpected 9.7 per cent growth in the number of new Aussie home loans in the same month bodes well on the prospects of the construction industry.

Better employment data are also expected to be out tomorrow. From the 5.3 per cent job vacancies figure in November, the 25,000 new hires forecast will pull the unemployment rate down to 5.1 per cent from 5.2 per cent in the previous month.

Warwick McKibbin, board member of the Reserve Bank of Australia, earlier warned that the flood damage to infrastructure and transportation networks could affect the economy by 1 per cent.

Many economists, however, contest McKibbin's number. They estimate lower economic impact of only 0.2 to 0.5 percentage point based on the reconstruction efforts being exerted and expecting the immediate revival of coal exportation after the floods.