The Australian dollar held a firmer tone on Friday, encouraged by better risk appetite, although a grim outlook for the global economy and expectations of aggressive rate cuts at home kept the mood cautious.
At the local close, the dollar was idling at $US0.6561, up from $US0.6502 here on Thursday, marking the firmest finish since November 12.
It spent a sleepy session in a snug $US0.6540 to $US0.6580 range as a US holiday kept markets very thin and investors wary ahead of a likely rate cut from the Reserve Bank of Australia (RBA) next week.
A Reuters poll of 20 analysts found most expected the central bank would cut its key cash rate by 75 basis points to 4.5%, bringing the easing since September to 275 basis points.
A few saw scope for a cut of 100 basis points but bill futures were toying with the idea of 125 basis points, which would be the largest since the early 1990s.
"The moves anticipated by the market are way too ambitious,'' said Bill Evans, chief economist at Westpac. "We support an aggressive move of 75 basis points, with an outside chance of 100, but cannot manage the stretch to 125.''
If he is right, such a "restrained'' easing could actually support the local currency, particularly as the European Central Bank, Bank of England and Reserve Bank of New Zealand are all expected to cut next week in a global effort to revive growth.
The Aussie has already gained 4 US cents from a one-month low struck last Friday, buoyed by the Federal Reserve's decision to bailout struggling banking giant Citigroup and fresh measures to jumpstart the depressed mortgage and consumer finance markets.
China's move to lower interest rates aggressively and expectations of a stimulus package from the euro zone area have also helped ease risk aversion.
"Whether this is enough to prevent a serious slowdown in the global economy remains to be seen,'' said Robert Rennie, chief currency strategist at Westpac.
"In the interim, the better risk environment should see Aussie higher, although a move beyond $US0.70 would be overdone in our view and we would look to re-establish shorts.''
The Australian dollar was firm against the Japanese yen, rising to 62.52 yen, from 61.78 yen late here on Thursday, with higher stocks encouraging leveraged carry trades.
The domestic data calendar picks up next week, providing clues about the economy. Third-quarter company profits and inventories are out on Monday, while the current account is due on Tuesday. Also due on Tuesday are retail sales for October, which will be an early read for fourth-quarter activity.
On Wednesday, a day after the central bank rate decision, third-quarter gross domestic product data will be released and analysts expect the economy to grow by a meagre 0.2%.
Aussie bonds recouped some of their losses, edging up as uncertainty about the economy supported their safe-haven allure. Three-year Australian bond futures were indicated 0.075 points higher at 96.40, while the 10-year contract rose 0.050 points to 95.400.
Reuters
