THE dollar rebounded slightly from a week-long sell-off, helped by signs of concerted efforts to protect Europe's banks.
While the bounce back in the currency did little to dent a more than 10 per cent drop in the past month, the move served as a sharp contrast to the significant declines that had enveloped markets recently.
Driving the gains in US action was a report that European Union finance ministers are considering how to co-ordinate bank recapitalisations.
After the Europe report, the dollar hit some weakness in early Asian trading before getting a second boost from August retail sales, which increased 0.6 per cent, well above the 0.2 per cent rise forecast by economists.
That consumers would shrug off rising unemployment and fears that sectors outside the mining boom are being hurt helped erase some of the talk that the Reserve Bank may cut interest rates soon.
The retail sales "provided a brief reprieve after the sell-off resumed at the start of trading this morning," said Roland Randall, senior strategist at TD Securities.
At the close of the domestic trading session, the dollar was at US95.42c, up from US95c late yesterday. Against the Japanese yen, the currency changed hands at Y73.211, up from Y72.832.
Even with the bounce back, Greg Gibbs, head of currency strategy at RBS, said more gains could be coming from a short squeeze that might extend the dollar to a range of US97c to US98c in coming sessions.
Though, he added those levels will form a new top for the currency.
While the currency rebounded, much of the discussion in the fixed income market surrounded a continued pick-up in the cost of insuring the debt of Australian banks.
Credit default swaps for five-year senior notes of Australia's top four banks have traded around their highest levels in three years in recent days to about 240 basis points, compared with about 130 basis points as recently as early August.
Matthew Johnson, senior interest rate strategist at UBS, said the move reflects the impact on credit markets globally from the continued unrest surrounding Greece.
"In small markets like Australia, when it becomes one-sided like it has been, it can really move," said Mr Johnson.
