Aussie dollar closes high

SYDNEY - The Australian dollar closed higher on Friday on increased demand for the currency from local fund managers rebalancing their portfolios.

At 1700 AEST, the local currency was trading at US$0.8278/80, up from Thursday's close of US$0.8225/28.

During the day, the unit moved between US$0.8240 and US$0.8304, the latter reached in the final hour of the local session.

RBC Capital Markets senior currency strategist Sue Trinh said local economic data - a private sector inflation report and the latest figures on demand for credit - had little impact during the local trading day.

Instead, Ms Trinh said the price action was determined by local fund managers having to rebalance their foreign exchange hedging at the end of the month.

"Given the rally in US stocks over the month of July, the value of their offshore holdings has actually increased relative to the benchmark that they are supposed to hold," Ms Trinh said.

"In order to rebalance that, they have to sell US dollars and buy more of the local currency, that is, the Aussie dollar."

Ms Trinh said anticipation of these foreign exchange flows had also drawn speculative players into the market.

"We've had the real money flow, which is the actual necessary moves by the portfolio managers, but then you've got the speculative positioning on top of that and that has exacerbated the upside for the Aussie dollar," Ms Trinh said.

The focus of Friday night's (AEST) offshore session was expected to be on the release of US gross domestic product (GDP) data for the June quarter.

The median market forecast was for the advance estimate of June quarter US GDP to show the world's largest economy contracted by 0.7 per cent.

But there were a wide range of views, with the most pessimistic a 2.8 per cent decline and the most upbeat an 0.7 per cent rise to June quarter GDP.

"Clearly, a lot is riding on the GDP, given the S&P500 for instance is inching ever closer to that 1000 level," Ms Trinh said.

"If it is weaker than expected, which is what RBC is forecasting, then that's likely to put a cap on the Aussie dollar."

CURRENCY TABLE:

CURRENCY SPOT PREVIOUS CLOSE

AUD/USD 0.8278-80 0.8225-28
AUD/JPY 78.82-85 78.15-18
AUD/EUR 0.5863-70 0.5834-42
AUD/NZD 1.2625-37 1.2586-92
AUD/GBP 0.5003-10 0.4990-97
EUR/USD 1.4112-14 1.4088-90
USD/JPY 95.21-23 95.01-03
EUR/JPY 134.36-40 133.85-88

(*Closes taken at 1700 AEST previous local session)

At 1600 AEST, the Reserve Bank of Australia's trade weighted index (TWI) was at 65.7, up from Thursday's close of 65.2.

- AAP