The Australian dollar jumped on Monday after the US government's move to rescue two major mortgage giants helped ease some of the severe risk aversion that had gripped financial markets recently.
The bailout seemed to lessen one major risk to global financial markets, boosting appetite for riskier assets. Asian stock markets rallied and Australian bond futures tumbled as safe-haven inflows took a breather.
"The US government bailout of two large housing finance agencies is a positive development for the world's financial system and the Aussie,'' said Joseph Capurso, currency strategist at Commonwealth Bank.
Three-year bond futures slid a hefty 0.115 points 94.365, their biggest daily fall in three months while the 10-year bond contract shed 0.135 points to 94.265.
The US government's takeover of Fannie Mae and Freddie Mac was prompted by worries over their shrinking capital and was the latest in a series of emergency steps taken by officials to prop up the wobbly housing sector.
In late trading, the dollar climbed to $US0.8315, from $US0.8123 late in New York on Friday.
It fell to a one-year low of $US0.8028 on Friday, weighed down by heightened risk aversion and lower commodities prices that had lost ground on expectations a slowing global economy would dent demand for resources.
The dollar advanced to 90.22 yen, reversing some of the slide late last week when it dived to a two-year low of 84.98.
The Aussie also found modest support from comments by Reserve Bank of Australia (RBA) governor Glenn Stevens who suggested he was in no rush to cut interest rates.
The central bank lowered rates last week for the first time in seven years, reducing the benchmark cash rate to 7.0%.
"The governor has indicated a gradual reduction in interest rates. Overall, we see some upside risks to the Aussie against the US dollar this week,'' said Commonwealth's Capurso.
Mr Stevens said the RBA was not pre-committed to easing and any decision would depend on developments month to month. He also noted that a restrictive policy was still appropriate.
Still, financial markets are pricing in a 80% chance that the RBA will cut interest rates again in October by a quarter of a percentage point to ease some of tight credit conditions that have led to a rapid cooling in consumer demand.
A private sector survey on Monday showed advertising for jobs fell by the steepest in over seven years in August, pointing to subdued demand for labour and backing views of more rate cuts.
On Tuesday, investors will get more clues about the economy when the government releases retail sales data for July. Economists are expecting a rise of 0.5% month-on-month, seasonally adjusted.
Reuters
