SYDNEY - The Australian dollar finished almost three-quarters of a US cent stronger yesterday as investors became more convinced that local interest rates will rise next month.
Last night, the currency was trading at 75.42/47USc sharply up on Tuesday's close of 74.73/77USc.
During the local session it reached a low of 75.16USc and a high of 75.48USc.
National Australia Bank currency strategist John Kyriakopoulos said increased expectations of another interest rate rise by the Reserve Bank of Australia in August were supporting the domestic unit.
At the start of the week, the implied probability of a rate hike in August was below 50 per cent, but this has since risen to about 64 per cent.
"We've had a series of data, including housing finance, which was pretty strong, the NAB business survey activity index was reasonably solid, and consumer sentiment rose, suggesting that despite the rate hike in early May and higher petrol prices, the income tax cuts seem to be supporting confidence," he said.
June employment data due today and the second quarter consumer price index, due on July 26, would be important for the central bank's deliberations at its August board meeting.
Kyriakopoulos said rising metals prices in the past weeks were providing a positive backdrop for the aussie.
"And you're seeing some speculative positions shifting out of the Canadian dollar and into the aussie and kiwi, which is also helping."
The July Westpac-Melbourne Institute consumer sentiment index showed a sharp 3.5 per cent rise, seen by analysts as fuelled by tax cuts that started this month, and despite high petrol prices and a May interest rate rise to a cash rate of 5.75 per cent.
"The rise in confidence does tick another box for an RBA rate rise in August," said JP Morgan economist Jarrod Kerr.
Today's jobs report is expected to show a 10,000 employment increase and the unemployment rate holding at May's 30-year low of 4.9 per cent, though some economists are predicting a 4.8 per cent jobless rate.
A rate rise in August would make Australian assets more attractive at a time when the US Federal Reserve could be ready to pause after its two-year tightening cycle.
The market may get a better handle on the outlook for interest rates when Deputy Reserve Bank Governor Glenn Stevens speaks on "The conduct of monetary policy" shortly after the release of the labour force report.
Other factors at play supporting the aussie's advance were the US dollar's weakness and gold prices firming initially after the Mumbai train blasts.
The aussie also firmed more than 1 per cent against the Canadian dollar to its highest level in nearly eight weeks after the Bank of Canada signalled it was in no rush to raise interest rates any time soon.
The Australian currency eased to a one-week low against the New Zealand dollar after a US bank recommended buying the kiwi against the yen.
Meanwhile, Government leadership tensions continued to simmer with Treasurer Peter Costello saying he wanted a smooth transition when Prime Minister John Howard steps aside, but not ruling out a challenge before the 2007 election.
- REUTERS
Rate increase talk pushes up currency
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