A strong performance on Wall Street overnight boosted the currency - at 0600 GMT, the Australian dollar was at US96.78 cents, up from US95.85c late yesterday and just off its overnight high of US96.86c. Against the Japanese yen, the Australian dollar was at Y81.01, from Y80.705. In equities markets, the financial sector dragged on the Australian bourse. The benchmark S&P/ASX 200 index fell 24.8 points, or 0.53 per cent, to 4645 points, while the broader All Ordinaries index dropped 23 points (0.49 per cent) to 4694 points. IG Markets research analyst Ben Potter said the stockmarket had “slipped away”, with nothing to drive it. “I think we've had such a good rally in September that we're really lacking any fresh catalyst to really send the market higher,” Mr Potter said. “People are probably a little bit sceptical coming to the end of the quarter and the end of the month. We may see some people taking profit off the table. It's very much a game of limbo at the moment.” Mr Potter said US data on the economy and employment, to be released on Thursday night, and a speech by US Federal Reserve chairman Ben Bernanke could provide some impetus. Australian bonds dropped on the short end of the curve as expectations of an interest rate hike next week by the Reserve Bank continue to grow. As US stocks climbed at the New York open yesterday, the Australian dollar surged to a new 26-month high, a level it mostly kept to for much of the Asia trading session. Despite drops in consumer confidence and central-Atlantic manufacturing conditions in the US, traders there saw the economic weakness as a sign the Federal Reserve may be more likely to introduce more stimulus measures, pushing up equities and risk-sensitive currencies like the Australian dollar. Even after rallying broadly for the past month, Australian dollar bulls are showing no signs of slowing down even as the currency inches towards a strong level of resistance, said a Sydney-based strategist at an Australian bank. “The window of opportunity for the Aussie to hit parity (against the US dollar) is open. If there was ever a time for it to hit parity, it would be now. That said, there will be quite a bit of resistance at US98.50c,” said the strategist, noting the US98.50c level is the currency's high since it was floated in 1983. To break above that level, the strategist said another rally hinges on whether the RBA hikes next week and whether they signal another hike in November, as well as any signs on what the Fed may do. Bond prices were hurt by the rally for riskier assets. Also weighing on bond prices, especially on the short end, RBA board member Jillian Broadbent told Dow Jones Newswires that Australia's economy will see stronger growth in 2011 spurred on by China. Those comments come ahead of the bank's closely watched interest rate decision next week, when the RBA is expected to tighten policy in an effort to manage the country's surging economy. “Australia is fine. We will probably get higher growth in 2011. China will continue to grow and the U.S. will continue to struggle,” Ms Broadbent said. In the interest rate futures market, three-year bonds fell two ticks to 95.09, while the 10-year rose 1.5 ticks to 94.925. The price of Australian shorter-dated bond futures fell two points after the comments from Ms Broadbent.

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