The Australian dollar drifted lower on Friday, giving up gains as Asian stocks fell and speculators cut positions in riskier assets ahead of a key US jobs report later in the session.
The Shanghai Composite index was down 1.8 per cent while the Nikkei was mostly flat. The Aussie has a strong correlation with the Shanghai stock market, given the Australian economy's huge exposure to China through trade.
In late trade, the Australian dollar was down 0.3 per cent at $US0.8449. It had jumped to as high as $US0.8510 from around $US0.8428 after the Australian government agreed to a deal on the controversial mining tax.
The dollar was down 3.4 per cent for the week so far.
"This is good news for the Aussie as the mining tax has been a significant drag," said Gavin Stacey, an economist at Barclays Capital. "It resolves a significant addition to the uncertainty surrounding the future value of Australia's resource companies."
The deal trims projected tax revenue by a modest $1.5 billion and that will be met by cuts in planned expenditure. It still leaves the government on track for a budget surplus by 2013.
"We think that relative fiscal positions will play an increasingly large role in driving forex in the coming months and will act as a major support for the Aussie, especially against the G4," added Stacey.
Still, traders cautioned that sentiment towards high-yielders and riskier assets remained cautious ahead of the US non-farm payrolls (NFP) number.
The US Labor department releases its June employment report overnight. Economists are forecasting a loss of 110,000 jobs in June compared with an increase of 431,00 jobs in May.
A negative surprise could weigh on the US dollar which in recent sessions has ceded ground on soft economic numbers. On the other hand, a strong number could see the US dollar gain.
"As the speculation on the weak result for the NFP has heightened, if the NFP turns out to be strong as we expect, it could lead to a rebound in UST yields and the US dollar," JPMorgan said in a report.
So traders said positions were being squared, with the long weekend in the United States also prompting investors to cover.
AAP