The Australian dollar rallied to its highest in nearly five weeks against the US currency on Monday after strong producer price data dashed hopes the central bank would give up its tightening bias in the near term.
The Aussie was also lifted by higher demand for riskier assets and higher-yielding currencies. Regional stock markets rose on Monday, taking a cue from Wall Street, with investors growing increasingly confident that the worst of the global credit crisis may be over.
Australian first-quarter final goods producer price index (PPI) rose 1.9 pct quarter-on-quarter, handily beating market forecasts of a 1.0 percent rise. For the year to March, the index was up 4.8 percent, higher than a Reuters poll which forecast a 3.9 percent rise.
The data stoked expectations that the consumer price index (CPI) report on Wednesday could deliver a stronger number, forcing many to scale back expectations of a rate cut by the Reserve Bank of Australia (RBA) by the end of the year.
The CPI is seen rising 1.1 percent in the first quarter, after a 0.9 percent increase the previous quarter. That would lift the annual rate to 4.0 percent, up sharply from 3.0 percent in the fourth quarter of last year.
"The PPI was way above expectations and takes a rate cut off the agenda," said Tony Morriss, senior currency strategist at ANZ. "If anything, the data shows that inflationary pressures are still strong and there is a risk that rates could be headed upwards rather than downwards."
The Aussie was at $0.9405/07 against the US dollar, up from $0.9390/92 late here on Friday. It advanced to a high of $0.9409 during the session, its best level since March 17, and off a session low of $0.9316. The Aussie also advanced to a seven-week high against the yen, rising to 97.79 yen, as investors warmed to riskier carry trades, where they invest in higher-yielding currencies by borrowing in the yen.
"The recent improvement in risk appetites, after a batch of better-than-expected earnings reports from US companies last week is also moderating the Aussie's headwind arising from risk aversion," said Besa Deda, senior market strategist at St. George.
"The attractiveness of Australian interest rates and the rising terms of trade continue to underpin demand for the Aussie dollar. The high PPI outcome suggests Australian interest rates will remain more attractive for longer."
Australian bond yields rose sharply, especially those at the shorter end, as investors pared back expectations of a rate cut in the near term on the back of the strong PPI data. Three-year Australian bond futures lost a steep 0.175 points to fall to 93.59, making it their biggest one-day drop in four years. The 10-year bond contract shaved off 0.095 points to drop to 93.685.
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