The Australian dollar was sharply higher today after companies reported better-than-expected investment intentions for the coming year.
The solid investment report triggered heavy buying of the Australian dollar as traders reduced bets on a further cut in interest rates by the Reserve Bank of Australia in coming months.
Economists said it reduced the likelihood of a sudden fall in economic growth later in 2013 as mining investment fades.
The policy making board of the Reserve Bank of Australia next meets on Tuesday. While economists still think the RBA might cut its policy rate again, that probably won't happen until the middle of the year.
RBA Governor Glenn Stevens told parliament a week ago the pipeline of interest rate cuts was substantial, indicating he will only cut again if the economy weakens unexpectedly.
Government data showed companies expect to cut investment in the fiscal year starting July 1 by 8.1 per cent compared with the previous fiscal year. The decline was only half as large as financial markets were expecting.
At 4.48pm AEDT, the Aussie was buying to 1.0274 US cents, from 1.0217 US cents late in local trade yesterday. It traded as high as 1.0285 US cents in Asia.
Sue Trinh, currency strategist at RBC Capital Markets in Hong Kong said the fear that investment weakened sharply in the fourth quarter "seemed unfounded."
"We think the report materially weakens the case for easing in the near term," she added.
Still, the data confirmed that fourth-quarter economic growth figures, due next week, are likely to show a lacklustre economy, supporting the RBA's decision to cut interest rates by half a percentage point in the final months of 2012.
In total, interest rates have been cut by 1.75 percentage points to 3 per cent since November 2011, highlighting the RBA's concerns about the world economy, and its lack of concern about local inflation risks.
Earlier in the day, the Housing Industry Association, an umbrella for major home construction firms, said new home sales rose 4.2 per cent in January from December, the fourth straight month of gains, signalling a recovering in the key segment of the economy.