By Wayne Cole
SYDNEY, April 3 () - The Australian dollar rallied on Wednesday as domestic and Chinese economic data proved surprisingly strong, while another report circulated that the Sino-U.S. trade dispute might be close to a resolution.
The Aussie dollar hopped up 0.4 percent to $0.7099, after touching a three-week trough of $0.7052 on Tuesday. The bounce was timely for bulls as the currency had looked in danger of breaching major support levels and testing the 70 cent mark.
Helping sentiment was a report from the Financial Times that the United States and China were close to a trade deal, though still haggling over some sticking points.
That was followed by a Caixin/Markit survey showing activity in China's services sector picked up to a 14-month high in March as demand improved at home and abroad.
Australian data also proved promising, with retail sales jumping 0.8 percent in February when analysts had looked for just a 0.2 percent rise.
It was the largest increase in 15 months and suggested household consumption was making something of a comeback after a poor end to last year.
Adding to the good news, Australia's trade surplus climbed to a record high of A$4.8 billion ($3.41 billion) in February as a surge in iron ore exports offset a weather-driven drop in coal.
That brought the rolling 12-month surplus to almost A$30 billion, with A$9 billion in January and February alone. That was a windfall for corporate profits, national income and the government's tax take.
All of which would be a comfort for the Reserve Bank of Australia (RBA) which sounded some cautious notes on the economy after its monthly policy meeting on Tuesday.
In particular, analysts seized on a wording change in the last sentence of its policy statement to suggest the bank might be inching toward an easing bias on interest rates.
"The lift in retail sales was a very solid outcome that gives the RBA some reassurance that household spending could bounce back in the first quarter," said Kaixin Owyong, a market economist at NAB.
"There may be some price impacts at play - food sales were unusually strong - but these data give the RBA room to remain on hold."
The better numbers led to a slight lengthening on the odds of a rate cut anytime soon, though a quarter point move is still fully priced for August.
Australian government bond futures dipped, with the three-year bond contract off 3 ticks at 98.635. The 10-year contract also fell 3 ticks to 98.1550.
New Zealand government bond yields rose as much as 4 basis points at the long end of the curve.
($1 = 1.4088 Australian dollars)
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