Dollar bolstered by data and shares

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This was published 14 years ago

Dollar bolstered by data and shares

The Australian dollar staged a comeback on Tuesday, bolstered both by a robust economic report at home that backed views interest rates are unlikely to be cut further and by some easing in global risk aversion.

The dollar climbed as high as $US0.7861, up from a near eight-week low of $0.7700 on Monday, after a survey of Australian businesses found a surprisingly strong rebound in activity.

It closed locally at $US0.7850, up from yesterday's close of $US0.7733.

National Australia Bank's (NAB) measure of business conditions jumped 12 points in June, taking it back to the level held before the collapse of Lehman Brothers in September last year.

Firms were more confident than for any time since late 2007 while an index of employment intentions enjoyed a record increase, fuelling speculation the jobless rate would not rise as far as many had feared.

Investors reacted by paring back the chance of any more rate cuts from the Reserve Bank of Australia (RBA), with December bill futures dropping a hefty 0.120 points to 96.760.

"It is a combination of confidence returning to global markets and a better-than-expected NAB survey which helped the Aussie gain ground," said Katie Dean, senior economist at ANZ.

"It will be interesting to see whether it holds these levels in the next few hours. If we get some bad earning numbers from the US, it could well fall to around $US0.7800."

Investors are eyeing the US corporate earning season for more evidence of an economic turnaround. Tech bellweather Intel and banking giant Goldman Sachs report later on Tuesday, while GE, Citigroup and JPMorgan come later in the week.

It was optimism over the banks that helped the Aussie off its lows on Monday. Influential banking analyst Meredith Whitney sent financial shares higher by upgrading the outlook for Goldman Sachs, helping lift the S&P 500 2.5 per cent.

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That in turn stimulated appetite for riskier assets, while lessening the need for safe havens like the yen.

The Aussie firmed to 73.25 yen, from 71.40 yen late here on Monday. It had hit a two-month low of 70.72 offshore, haivng lost more than 8 per cent in July on selling by Japanese margin traders.

But the Aussie lagged its kiwi counterpart, which was underpinned by upbeat comments from New Zealand's central bank governor Alan Bollard.

The Aussie hovered near 3-month lows on the kiwi, trading at $NZ1.2396, down from $NZ1.2402 late here on Monday.

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Australian government bonds fell, partly driven down by the strong NAB business conditions survey and as safe-haven inflows took a breather.

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