The Australian and New Zealand dollars gained support on Friday as hopes for a bigger round of Chinese stimulus spending on infrastructure boosted commodities, while both also benefited from a dive in the energy-dependent euro.
The Aussie was up 0.2% to $0.6854, having bounced 0.6% for the week and away from a two-year trough of $0.6762.
The kiwi dollar crept to $0.6184, though that was still down 0.3% for the week and near its two-year low of $0.6125.
Sentiment was aided by reports China’s Ministry of Finance is considering allowing local governments to sell 1.5 trillion yuan of special bonds in the second half of this year to spend on construction.
“It’s hard to determine the exact increase in infrastructure spending being planned for the second half of the year.
What we do know is that infrastructure spending will likely be quite significant to support the Chinese economy,“ said analysts at the Commonwealth Bank of Australia.
They added that steel, iron ore and base metal prices are likely to benefit the most.
China is Australia’s biggest customer for iron ore. Further helping was news that Australia and China’s foreign ministers will meet for the first time in three years at the G20 meeting in Bali, offering signs of relief for the deteriorating relationship between the two countries.
Australian dollar gets some reprieve from record trade data
The Aussie and the kiwi were also buoyed by the falling euro, which continues to be plagued by energy woes and recession risks.
The euro was down at A$1.4850, and heading for a 3% decline for the week.
In contrast, resource-rich Australia recorded a record trade surplus of A$16 billion ($10.85 billion) in May, led by gains in coal and LNG exports.
The lift in exports suggests trade will make a sizable contribution to economic growth in the June quarter, adding to the case for more interest rate rises from the Reserve Bank of Australia (RBA).
Analysts at ANZ now see the RBA hiking by another 50 basis points in August to 1.85%, up from 25 bps previously.
They see rates at 2.35% by year-end and nearer to the RBA’s estimate of neutral.
“Once in the neutral range, we expect the pace of rate hikes to slow sharply,” said David Plank, ANZ’s head of Australian economics.
“That they are clearly impacting the property market is a factor in this.” ANZ sees home prices falling 15-20% over 2022/2023.