Australian dollar buoyed by China’s stimulus plan

The Australian dollar ended the local session higher on Thursday as investor sentiment rose on a fresh stimulus plan for China’s economy.

At 1700 AEDT, the Australian dollar was trading at $US0.6428/31, up from Wednesday’s close of $US0.6326/32.
During the day, the unit moved between $US0.6415 and $US0.6497.

On Thursday, Chinese Premier Wen Jiabao said government spending would rise 25 per cent this year in a bid to boost the slowing economy and achieve eight per cent growth.

Economic growth in China slowed to 6.7 per cent in the last three quarters of 2008, compared to 13 per cent in the corresponding period the year before.

Nomura chief economist Stephen Roberts said investor sentiment improved following the Chinese news, which gave a lift to risk-sensitive assets such as the Australian dollar.

The Chinese news gave local sharemarket a lift, with the benchmark S&P/ASX200 index closing up 0.7 per cent, while the broader All Ordinaries index gained 0.73 per cent.

“The Australian dollar received a lift on the optimism on the China growth story,” Mr Roberts said.
“Our fortunes are very much tied with China.

“The more there is confidence with (China’s economy lifting), the better the chance the Australian dollar will find a footing.”

Mr Roberts said local data had minimal effect on the Australian dollar.
Australia’s trade balance was a $970 million surplus in January, official data showed, up from $417 million the previous month.

Building approvals fell 3.7 per cent across Australia in January, the seventh monthly fall in a row.
For Thursday’s offshore session, Mr Roberts said the Australian dollar’s fortunes were linked to the market’s response to the two-year four trillion yuan ($A902.93 billion) stimulus package largely for infrastructure projects.

“On the views the market take of the People Congress meeting in China and what that means for Chinese growth,” he said.

Also, markets would await the release of initial payroll claims in the US for the last week of February, ahead of key employment reports on Friday, Mr Roberts said.
“The market will be fairly cautious running into what looks like a pretty big non-farm payrolls,” he said.
“The market consensus for non-farm payrolls is over 600,000, which would be the fourth consecutive month of a weaker-than 500,000 result.”

At 1600 AEDT, the RBA’s trade weighted index was at 55.1, up from Wednesday’s close of 54.3.