The Australian dollar bounced from lows on Thursday after bets of further interest rate rises at home offset concerns that China may further tighten policy to rein in 16-month high inflation.
The Aussie's yield appeal also got a boost after the Reserve Bank of New Zealand said any rates rises there would not be as aggressive as they had been in the past.
At the local close, the dollar traded at $US0.9142, up off the day's $US0.9113 lows, but slightly lower than yesterday's close of $US0.9152.
It had taken a knock initially after data showed China's inflation quickened to 2.7 per cent in February, topping forecasts of 2.3 per cent.
That led some investors to worry a tighter Chinese monetary policy may hamper growth in the world's third-largest economy and a key driver of activity in Asia. China is the biggest buyer of Australia's exports.
It was also briefly upset by a surprisingly subdued rise of just 400 in Australian employment for February. Yet analysts emphasised the detail of the data were strong, with hours worked particularly robust and fulltime jobs up for a sixth month.
"The latest data show the Australian economy in very good shape, allowing the Reserve Bank of Australia (RBA) to hike again in April if it pleases," said Rory Robertson, a Macquarie analyst who is closely followed by the market.
"If you put a gun to my head today, I'd guess that the RBA is going to hike again by 25 basis points in April," he said.
His comments led April interbank futures to give up earlier gains and fall 0.015 points to 95.915.
That implied a 1-in-3 chance of rates rising 25 basis points to 4.25 per cent in April.
Over the next 12 months, investors think rates could rise 116 basis points. By the end of 2011, Robertson said Australian rates may be as high as 6.0-6.5 per cent.
With rates at 4.0 percent, the local dollar is already well sought after for its high yield allure.
It is near 25-year highs on sterling at 0.6102 pounds, while the euro is struggling near a record low at $1.4917.
Against the New Zealand dollar, investors took comfort from the fact that the local dollar's yield advantage over its neighbour would be maintained in coming months. That saw the Aussie leap one and a half cents to NZ$1.3078 amid heavy buying.
Underscoring the Aussie's yield advantage, the gap between two-year Australian and New Zealand swap rates hit a record high of 207 basis points on Thursday, TomsonReuters data showed.
Reuters
