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Australian dollar

closes on firm note

SYDNEY: The Australian dollar ended an upbeat week on a firm note, buoyed by an improving economic outlook both at home and in Europe.

A run of stronger than expected domestic data has cast doubt on assumptions the economy was slowing to a safer pace, while a hawkish annual report from the Reserve Bank stoked speculation the next move in monetary policy here would be a tightening.

Meanwhile, Thursday's aggressive cut in German interest rates provided a much needed fillip to the whole of Western Europe which in turn promised to strengthen world commodity prices, a major crutch for the Australian currency.

By 0640 GMT the local dollary was up at US$0.7423/28 compared to a US$0.7391/96 finish in Australia on Thursday and a US$0.7349/54 close this time last week.

The currency had reached as far as US$0.7445 at one stage this morning after a sizeable order for AUD/yen ushered it past US$0.7420 resistance and triggered a wave of stop loss buying.

However, dealers said importers were keen to sell up there and a Chinese player was seen on the offer again, perhaps to protect an options position with a strike around US$0.7460.

That latter level capped the dollar during its last rally in late July and is expected to be equally as tough that time.

Nevertheless, analysts through the currency had a better chance of penetrating to 75 cents on this occasion as given the big boost to sentiment of the German rate cut. The Bundesbank lopped 0.5 point off its key discount rate to 3.50 percent, sparking a wave of easings across Europe.

It increased the yield advantage the local unit enjoyed over the mark and, with Australian three month deposits paying 7.37 percent against just 4.25 percent in Germany, offshore investors should be keener than ever to park funds here, they said.

Furthermore, the promise of faster growth in such a leading industrial country as Germany had to be positive for commodites.

Since commodities make up more than 60 percent of Australian exports, any developments with the potential to lift prices is viewed as beneficial for the local dollar.

Domestic developments have also leant the currency's way recently with a bevy of upbeat data showing the economy maintained more momentum than previously thought.

Startlingly strong inventories and business investment figures this week have analysts busy revising up their estimates for June quarter GDP data, due Wednesday. Average forecasts were now for growth of around 1.4 percent, an outcome which could lift annual growth to 4.1 percent from 3.7 percent in Q1.

Such a robust outcome was unlikely to please the RBA, which sounded a cautionary note on inflation in its annual report this week, and means risks for monetary policy are all on the upside.

The only major stumbling block for the currency ahead is the June current account on Tuesday. Most analysts are expecting the deficit to widen but not to untolerable levels.

But they emphasised the data were notoriously volatile and they very strength of demand illustrated by the GDP performance threatened to keep imports high for a long time to come.

Also due in a packed week are July retail sales, Q2 foreign debt, motor vehicle registrations and building approvals.

The local dollar made ground on the crosses to stand at 1.0976/91, and 71.78/88 yen from 1.0945/55 and 71.41/51 late Thursday, while in trade weighted terms it climbed to 53.1 from 52.9.

It also held firm on the Kiwi dollar at NZ$1.1438/54 despite another tightening in policy by the Reserve Bank of New Zealand, the second rate rise in only two weeks.-Reuter