The Australian dollar rose on Wednesday on high hopes a strong take-up of the European Central Bank's (ECB) of cheap funds would bolster sentiment.
The dollar gained 0.3 per cent to buy $US1.0806 in late trade. It rose as far as $US1.0824 after stops above $US1.0790 were tripped.
The Aussie looked on track to post a gain of nearly 2 per cent in February. A break of $US1.0845, the February 8 high, could open the way up to $US1.1000 and a 30-year peak at $US1.1081 set last year.
The currency received a tail wind from strong Asian bourses with shares in Korea, Singapore and Japan around 1 per cent higher.
Risk assets were already in demand on hopes of a strong take-up of the ECB's three-year funds. Markets expect European banks to borrow about 500 billion euros ($670 billion) with forecasts ranging from 200 billion to 750 billion euros.
Anything above 500 billion euros, which would exceed the first round, could bolster the appetite for risk assets.
"We're looking for a take-up range of around 550-750 billion euros to be risk positive, and where we could start to see 'carry' currencies to rally," said Hamish Pepper, currency strategist at Barclays Capital in Singapore.
But some dealers are not so sure, warning today's rally could indicate the upside already priced in.
"Traders could think everyone is positioned the same way... It could be the case of 'buy the rumour/sell the fact' and see profit taking on recent moves," said David Scutt, a trader at Arab Bank Australia.
Markets also awaited Federal Reserve chairman Ben Bernanke's Congressional testimony, due Wednesday and Thursday, for his take on recent data and whether further quantitative easing might be needed.
"Bernanke is going to be equally as important (as the LTRO)... All the buying/selling on the LTRO could be reversed based on what he says and that's the more likely option," Scutt said.
Australian retail trade rose a modest 0.3 per cent, in line with forecasts but it is unlikely to change the outlook for steady interest rates in the near term.
Indeed, interbank futures hardly budged and imply less than a one-in-five chance of a cut in rates in March. They are not fully priced for a 25 basis-point cut to 4.0 per cent until June.
Other data out on Wednesday did surprise with a sizable 4.6 per cent drop in construction work last quarter, suggesting there could be some downside risk to gross domestic product (GDP) growth. Yet that followed a record jump in the third quarter and did not threaten the bullish outlook for business investment.
Australian bond futures eased modestly with the three-year contract 0.02 points lower at 96.370. The 10-year contract dipped 0.025 points to 95.955.
Reuters