Reuters Australia
Aussie dollar hovers below 96c, gains seen checked
Friday July 25, 11:58 AM
SYDNEY, July 25 (Reuters) - The Australian dollar bounced from two-week lows to just around 96 U.S. cents on Friday, but gains are likely to be curtailed by a fresh bout of risk aversion and little prospects of further monetary tightening locally.
* Lower stock markets on Wall Street led investors to unwind exposure to leveraged carry trades. As a result, the Aussie fell to 102.91 yen from 103.42 yen late here on Thursday.
* Gloomy global economic prospects hit demand for stocks and commodities, a factor which checked the Aussie's recovery. Australia is a big exporter of natural resources and has been riding on a favourable terms of trade position.
* Data from the U.S. showed that the pace of existing home sales tumbled to a 10-year low while jobless claims jumped, underscoring a view that the world's largest economy was still struggling [ID:nN24267606].
* Economic news from Europe too was not good either as German corporate sentiment suffered in July and manufacturing and services sector activity in France and Germany fell [ID:nL24100806].
* By 9:40 a.m., the Aussie AUD= was at $0.9588/93 against the U.S. dollar, marginally up from $0.9581/84 late here on Thursday. It fell to a two-week of $0.9540 in offshore trade, amid growing speculation that rates here had peaked.
* Spreads between two-year Australian and U.S. government bond yields narrowed to 426 basis points from 438 points at the start of the week, making high-yielding Aussie assets less attractive to investors searching for higher returns.
* Futures markets CSRBA1Y=CSAU have fully factored in a quarter percentage point rate cut by the Reserve Bank of Australia (RBA) in the next 12 months after second-quarter inflation figures, though high, were in line with expectations.
* Speculation of a rate cut here got a boost on Thursday after New Zealand's central bank lowered its overnight cash rate by 25 basis points to 8 percent. Both economies have been riding on a commodities boom in the past few years, but New Zealand is now grappling with recessionary conditions.
* Australian bond futures extended gains on growing speculation that cooling domestic demand would eventually lead the RBA to cut rates next year.
* Three-year Australian bond futures YTTc1 rose 0.06 points to 93.63, while the 10-year bond contract YTCc1 added 0.035 points to 93.65. (Reporting by Anirban Nag; Editing by Jonathan Standing)
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