TR: Aust dollar closes higher on improving risk appetite
July 30 2009, 6:01PM
The Australian dollar closed higher on Thursday after positive local data and a strong day on regional equity markets lifted risk appetite and pushed the currency back above 82 US cents.
At 1700 AEST, the local currency was trading at 82.27 US cents, up from Wednesday's close of 81.90 US cents.
During the day, the Australian dollar moved between 81.44 US cents and 82.26 US cents, the latter reached just before the local close.
The domestic unit found support after Australian Bureau of Statistics (ABS) figures showed the number of home building approvals rose 9.3 per cent in June, the largest monthly increase in four years.
St George Bank chief economist Besa Deda said the building approvals data helped spur the Australian dollar higher as financial markets brought forward expectations of interest rate rises from the central bank.
"What we are really seeing now is financial markets pricing in rate hikes quite early for next year, almost fully pricing a four per cent cash rate by the end of June," Ms Deda said.
"That does make interest rate differentials supporting for the Aussie dollar."
The Reserve Bank of Australia's (RBA) cash rate sits at three per cent.
By contrast, official interest rates at 0.1 per cent in Japan, 0.5 per cent in the UK and 1.0 per cent in the eurozone.
The US federal funds rate sits in a target range between zero and 0.25 per cent.
Ms Deda said the rally on local and Asian equity markets also played role in the Australian dollar's performance.
"When equities are moving higher, that reflects a greater appetite for risk and that generally would lift demand for the Aussie dollar, assuming all other factors are equal," Ms Deda said.
At 1700 AEST, the Australian dollar was trading at 78.17 Japanese yen, up from Wednesday's close of 77.08 yen, and at 58.38 euro cents, up from 57.86 euro cents.
The euro finished at 1.4089 US dollars, down from Wednesday's close of 1.4156, and at 133.87 Japanese yen, up from 133.24 yen.
The US dollar ended the local session at 95.02 Japanese yen, up from 94.13 yen.
Meanwhile, the domestic bond market closed weaker.
At 1630 AEST, the yield on the Commonwealth Government March 2019 bond was at 5.640 per cent, up from Wednesday's close of 5.595 per cent, while the yield on the April 2012 bond was at 4.866 per cent, up from 4.817 per cent previously.
On the Sydney Futures Exchange, the September 10-year bond futures contract price was 94.395, down from Wednesday's close of 94.465, while the September three-year bond futures contract was at 95.000, down from 95.080 previously.
National Australia Bank head of research Peter Jolly said the positive building approvals report put pressure on government bonds and dampened the prospect of any more interest rate cuts.
"Yields have got to these levels and the futures contract prices have got to these lows on the back of the Australian economy performing better than most anticipated, and also performing better than most other countries," Mr Jolly said.
"It affirms the market's pricing and market's increasing expectation that the RBA will not cut rates again."
Australia had fared well so far compared with its industrialised peers but Mr Jolly cautioned that the economy was "not booming by any stretch" and was still weak.
The 90-day bank bill rate closed at 3.190 per cent, up from Wednesday's close of 3.160 per cent, while the 180-day bank bill rate was at 3.360 per cent, up from 3.340 per cent previously.
At 1600 AEST, the RBA's trade weighted index (TWI) was at 65.2, down from Wednesday's close of 65.3.
