Italy turmoil puts dollar under pressure

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Italy turmoil puts dollar under pressure

The Australian dollars nursed heavy losses today, amid rising fears Italy's woes could push for a break-up of the euro zone and spark global financial turmoil.

The Aussie dived as deep as a one-month low of $US1.0108, down more than 2 cents in 24 hours, after Italian bond yields spiked to 7.5 per cent, a level deemed unsustainable.

Solid Australian jobs and Chinese trade data helped stop the rout for now and nudged the Aussie up to $US1.0143 at the local close.

Indeed, the jobless rate at home unexpectedly dipped to 5.2 per cent, from 5.3 per cent, while full-time employment showed a robust increase of 20,000 jobs.

In China, imports from Australia showed a very healthy increase of 36.7 per cent from the same period last year. China is Australia's largest export market and a major influence on commodity prices.

The mood of investors, however, remains somber due to the sudden deterioration of the European debt crisis.

"The potential for default in Greece and Italy, which has the third largest bond market in the world, is a dark cloud hovering over both the AUD and equity markets," said Kyle Paige, risk solutions executive at Travelex.

He said the Aussie may see more downside, especially if there are further shocks in the euro zone and the Reserve Bank of Australia (RBA) cuts rates again in December.

Interbank futures are fully priced for a rate cut of 25 basis points in December, with a total of 104 basis points in cuts implied by March. The RBA eased by 25 basis points to 4.5 per cent earlier this month, the first time since April 2009.

Australian debt futures held hefty gains, having jumped to one month highs earlier in the session. The three-year debt contract is up 0.19 points at 96.610, and the 10-year added 0.125 points to 95.875.

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CMC chief market strategist Michael McCarthy said the Australian market was watching for any positive newsflow from Europe, with the Italian parliament to pass economic reforms by the end of the week.

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‘‘It’s quite clear that while the domestic factors are quite positive, it is the global macro considerations that are driving the Aussie at the moment,’’ he said. ‘‘At the moment we have no real newsflow until this evening’s trading session, so we don’t expect any moves until then. Given where we are at the bottom of the trading range, there’s potential for some risk-on should we get any mildly positive news.’’

Reuters, AAP

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