Forex - Aussie falls on RBA comments, weak house prices data in China

Investing.com - The Australian dollar fell on Monday after comments from a central bank deputy governor and weak house price data in China cast a bearish tone.

AUD/USD traded at 0.8024, down 0.17, while USD/JPY traded at 119.64, up 0.34%, despite data earlier showing a gain in cor machinery orders in March.

China said house prices for April year-on-year fell 6.1%, the same pace as seen in March. The data was negative for the Australian dollar as China is a top export destination for Australian commodities.

Earlier comments that the Reserve Bank of Australia wants a prudent balance between the helpful effect of low interest rates and unintended side effects like a surge in property values by Deputy Governor Philip Lowe lifted the Aussie.

"The further reduction in the cash rate earlier this month will provide a bit more support and it will help reinforce some of the recent encouraging signs - particularly in household spending. In time stronger consumption growth and a continuation of the pick up in residential construction should lead to a lift in business investment," Lowe said.

"A lift in non-mining investment remains the critical ingredient to stronger growth in the overall economy and to a successful transition," Lowe said.

But the RBA doesn't want to engineer a boom by encouraging people to borrow large amounts against future income because debt levels are already high, Lowe said.

"So there is a fairly fine line to tread here. The RBA's recent decisions have sought to strike a prudent balance - to help encourage consumption growth and thus business investment but avoid the type of imbalances that could cause problems later on," Lowe said.

Japan said core machinery orders gained 2.6% in March, compared to an expected rise of 1.8% month-on-month and a 0.4% drop in February.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was quoted at 93.43, up 0.15%.

Last week, the dollar was lower against the euro and the yen on Friday after a fresh batch of weak U.S. economic data underlined expectations that the Federal Reserve will delay hiking interest rates until the economy is on a stronger footing.

Data showed that U.S. industrial production fell for the fifth straight month in April and another report showed that U.S. consumer sentiment deteriorated to a seven month low this month.

The Federal Reserve said industrial output slid 0.3% after a revised 0.3% decline in March. Economists had expected an increase of 0.1%.

The University of Michigan's preliminary reading of the consumer sentiment index for May came in at 88.6, down from a final April reading of 95.9 and worse than forecasts for a reading of 96.0

The reports came after disappointing data on retail sales and producer inflation earlier in the week and dampened hopes for a second quarter rebound after a sharp slowdown in growth in the first three months of the year.

In the week ahead investors will be turning their attention to Wednesday’s Federal Reserve minutes for clues on the possible timing of a rate increase. Friday’s data on U.S. inflation will also be closely watched.

Meanwhile, the euro zone is to release data on private sector activity and China is to publish preliminary data on manufacturing activity.

On Monday, Switzerland is to release a report on retail sales.

Markets in Canada will be closed for the Patriots day holiday.