Markets: News  

Aussie edges to four-month high on housing hopes

SAN FRANCISCO (MarketWatch) -- The Australian dollar rose in U.S. trading Tuesday, touching a four-month high and up nearly 3% for the month, as confidence grew over a report on Australian building approvals.

"Overnight news and data have been cheerful Down Under," wrote Kit Juckes, analyst for Société Générale in a note. "Australia's building approvals figures were a good bit better than expected."

The Australian dollar (AUDUSD) , also known as the aussie, rose to $1.0506 -- the highest since March -- from $1.0496 late Monday. It's gained about 2.7% in July.

On Tuesday, the Australian Bureau of Statistics released building approvals for June, revealing new home construction approvals dropped by 2.5%, far short of the 15% drop industry experts expected.

That data gave investors a new read on how the Australian housing market is faring, said David Song, currency analyst for FXCM.

"One of the hurdles in Australia is the depressed housing market," he noted.

The aussie slid against the euro (EURAUD) , which bought 1.1711 Australian dollars from A$1.1674 late Monday, ahead of the European Central Bank meeting scheduled for Thursday.

"It's going to be very important to watch the policy decisions accompanying talks and the position [ECB President] Mario Draghi takes," Song said. Read more on Draghi.

With opposition from Germany strong, Song sees Draghi as cornered, not expecting much from these latest talks aside from continued bolstering of the euro in line with the ECB president's statements late last week.

"There is a deviation between what analysts and markets expect to see," Song said. "We're going to definitely need to see some new language about things coming down the pike for sentiments to change."

The Federal Reserve will release a statement Wednesday at the end of a two-day meeting. Song expects the aussie to continue trending high if the Fed talks down expectations on a third round of quantitative easing, but any proactive moves by the board will drag on the currency. Read preview of Fed.

Much of the Australian dollar's fortunes are tied to what traders expect the Reserve Bank of Australia to do. Investors are expecting further rate cuts, said Juckes.

"Any signs those cuts won't happen will give [the Aussie] wings," Juckes wrote.

The RBA's board will disclose its interest rate position at its next monetary policy meeting scheduled for August 7.

Song expects "they're going to be fairly dovish" as he anticipates a growing dependency between the Aussie and China's monetary policy as opposed to euro shifts.

"China's a big indicator for the Australian dollar," said Song. "I'm very bearish to the Australian dollar because China is going to continue to slow growth and that will continue to drag on the Australian economy going forward."