The Australian dollar held firm on Wednesday on talk the euro zone was close to a deal on aid for Greece, though details were still lacking and an announcement on the specifics was needed soon to keep the rally alive.
Reports of a deal on Tuesday lowered risk aversion and lifted the Aussie a cent to as high as $US0.8797, breaking resistance around $US0.8735 along the way.
But with no new developments in Asian trading day, the currency faded back to end local trade at $US0.8748 and shied away from resistance in the $US0.8810/20 area. It was likewise up on the yen at 78.39, but well off a 79.13 high.
"As Europe moves closer to ring-fencing Greece, bear market hedges make less sense," said John Normand, an analyst at JPMorgan. But there were also lots of "ifs".
"If European governments deliver on reports of bilateral assistance to Greece, and if Europe imposes conditionality akin to an IMF program, then EUR/USD will have seen a near-term bottom."
That in turn would tend to lift the Aussie, though the bank was reluctant to recommend cyclical currencies without both confirmation that China will achieve a soft landing and a clear improvement in US economic data.
Data out of China on Wednesday seemed to bode well for the Aussie with Australian exports to the Asian giant up 106 per cent in January compared to the especially weak figures of a last year.
Australian data showed consumer sentiment dipped 2.6 per cent in February, only partly unwinding January's sharp 5.6 per cent increase and still up 36 per cent for the year.
Consumers seemed concerned that interest rates would rise further, even though the Reserve Bank of Australia (RBA) surprised many by skipping a chance to hike at its policy meeting last week.
The effect of rising mortgage rates was also clear in a 5.5 per cent drop in mortgage commitments for December, the third straight month of falls.
Still, home loans for construction were up 58 per cent on December 2008 supporting expectations for a boom in building that should contribute strongly to growth this year.
Overall, the data fits in with the RBA's caution on rates and leaves the market pricing in only a one-in-four chance of a hike at the next meeting in March.
That may change depending on the January employment report due Thursday. Another strong number would likely narrow the odds for a hike to 4.0 per cent next month.
Bonds lost some of their recent gains as stocks rallied, and an auction of 3-year Treasuries drew only average demand.
Three-year bond futures eased 0.040 points to 95.220, while ten-year futures lost 0.055 points to 94.490.
Reuters
