The Australian dollar rebounded from multi-week lows after investor fears that Dubai may not repay its multi-billion dollar debt abated slightly.
The Australian dollar rose to 91.53 US cents at the local close, up over two cents from a 2-1/2-week low hit Friday.
It recovered on the yen to 78.82, from an eight-week low of 76.56 struck Friday. It was also buying 55.4 pence and 60.9 euro cents.
One trader said investors still like the Aussie despite its slide last week. He said buying was led by local banks, hedge funds, and speculators who had short the currency on Friday.
The next stop-loss levels were above 92.30 US cents and 93.30 US cents. If those levels are breached, the Aussie may rebound further. Some analysts agreed the Aussie still appeals. "We still see the Aussie in an uptrend," said Greg Gibbs, an analyst at RBS.
"Any weakness towards 90 US cents should be viewed as an opportunity to get long." Investor worries over Dubai's troubles ebbed on Monday after the United Arab Emirates offered to inject cash into Dubai's banks to limit any potential economic fallout.
The improved mood over Dubai helped investors look past a mixed bag of local economic data that left some torn on whether the Reserve Bank of Australia (RBA) will raise interest rates tomorrow.
Data out today showed Australian firms rebuilt inventories at a surprisingly rapid pace last quarter, suggesting economic growth in that period will be better than expected. Yet other data out on Monday also showed weakness in wages, company profits and business lending.
Add the weak spots of data to increased market volatility over Dubai's troubles, and a few say the RBA may skip a chance to raise rates to 3.75 percent on Tuesday. Rates stand at 3.50 percent now.
A measure of market probability from short-term interest rates show investors are wagering a 60 percent chance of a move on Tuesday. That is up from Friday's 46 per cent, but still under 74 per cent seen early last week.
Analysts overwhelmingly think the RBA will move tomorrow, however. A Reuters poll on Friday showed 18 of 19 analysts polled thought so.
"There are fragilities no doubt," said Adam Carr, an analyst at ICAP. "Nevertheless the cash rate will continue to provide support to the economy for sometime yet," Carr said, stressing that at 3.75 percent, the cash rate is still at a historical low.
Local bond futures were down, tracking weakness in U.S. Treasuries and hedging against the risk of imminent tightening.
Reuters
