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Dollar's brief rally above US 95 cents

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The Australian dollar has been knocked down by disappointing trade figures.

At midday Wednesday, the dollar was trading at 94.66 US cents, lower than its overnight peak.

The currency shot up to 95.06 US cents, its highest level since November, after the Reserve Bank of Australia gave a more neutral statement than the market expected following Tuesday’s interest rate decision.

The Australian dollar was also boosted by strong Chinese manufacturing figures and a rally on Wall Street.

But the currency took a hit after official figures on Wednesday showed that Australia’s trade deficit reached $1.9 billion in May.

“The trade deficit was much, much bigger than expected,” said Westpac senior currency strategist Sean Callow.

“$1.9 billion was quite a miss. It’s the biggest surprise in more than two years, so it was a very disappointing month for Australian exports.”

Meanwhile, Australian bond futures prices were mixed.

The September 2014 10-year bond futures contract was trading at 96.400 (implying a yield of 3.600 per cent), down from 96.405 (3.595 per cent) on Tuesday.

The September 2014 three-year bond futures contract was trading at 97.290 (2.710 per cent), up from 97.280 (2.720 per cent).

In a statement accompanying the July decision, governor Glenn Stevens maintained that the economy was expected to grow “a little below trend over the year ahead”.

But the language used was perceived as being more neutral than what was contained in the June meeting minutes, sparking an Australian dollar rally.

The currency was also boosted by strong Chinese manufacturing figures and a rally on Wall Street overnight, BK Asset Management managing director Kathy Lien said.

“The Australian dollar is doing extremely well. It’s been the best-performing currency during the North American trading session,” Lien said.

“First and foremost, we had the RBA statement which was not as dovish as the market anticipated.

“We also had strong Chinese manufacturing numbers and US stocks hitting record highs.

“It is the improvement in global growth which is really driving the enthusiasm for US equities and, in turn, driving enthusiasm for high-yielding currencies and the Australian dollar is the big beneficiary of that.”

 

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