Aussie climbed steadily higher on Tuesday, boosted by weak Chinese inflation data which fuelled hopes of an impending interest rate cut by Beijing, says The Sydney Morning Herald.
The weak inflation profile suggested deflation had become a real risk for China, thus paving way for further monetary policy easing, ANZ China chief economist Li-Gang Liu said.
The Australian dollar reached US78.41¢ in late trade, with the biggest rally for the day coming on the back of the news that China's consumer inflation had slowed to an annual rise of just 0.8 per cent in January. Annual consumer inflation was expected to hit 1 per cent in January compared with last year, after reaching 1.5 per cent in December.
"The fact that China's central bank cut the reserve requirement ratio (RRR) last week and conducted a large amount of reverse repos before the Chinese New Year, indicates that the central bank has engaged into aggressive easing to head off the deflation risk," ANZ China chief economist Li-Gang Liu said, adding "market interest rates remained elevated while the renminbi exchange rate weakened, pointing to capital outflows from the onshore market."
ANZ expects the PBOC to lower the deposit rate by 25 basis points in the first quarter, and another 50-basis-point RRR cut in the following quarter.
Commonwealth Bank of Australia economist Andy Ji said in an investor note the "weaker inflation outlook has preceded the recent slew of dovish surprises by the People's Bank of China as well as other global central banks".
"However, we believe, despite the cuts to both required reserves and benchmark interest rates, the continued real appreciation of the Chinese renminbi needs to reverse to prop up imported inflation, shown in the collapsing producer price index," he said.
Data from the National Australia Bank monthly business sentiment survey showed while respondents were slightly more optimistic in January than December, up from 2 points to 3 points, trading conditions and profitability took a tumble.
The news clearly came as no surprise to traders as the dollar quietly tracked between US77.93¢ and US78.41¢ for the duration of the day's trade.
The Aussie reached a high of US78.06¢, ¥92.72, €68.98 and 51.25 British pence overnight.
Currency analysts will be focused on the employment figures and a speech by Reserve Bank of Australia assistant governor Guy Debelle, both on Thursday.
Further afield, currency strategists will also be closely watching the outcome of the EU finance ministers' meeting, as the decision on Greece that did not prove popular could also put pressure on the Australian dollar.
