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Reuters Australia

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Aussie dollar off lows before cenbank rate meeting

Monday November 2, 07:19 PM

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* Aussie regains some lost ground on sovereign buying

* Chinese data also helps at the margins

* Awaits RBA rate decision, accompanying statement

SYDNEY, Nov 2 (Reuters) - The Australian dollar rebounded from near one-month lows on Monday as a bout of profit taking in the local currency took a breather and bids emerged at lower levels from sovereign funds, dealers said.

The Aussie was also supported by expectations the Reserve Bank of Australia (RBA) would raise its cash rate by 25 basis points to 3.5 percent at its monthly policy meeting on Tuesday [AU/INT].

"We saw buying by some sovereign names around the $0.8960 levels which I now suspect could emerge as a support in the near term," said David Scutt, forex trader at Arab Bank Australia.

"While expectations of a rate rise tomorrow should help the Aussie, it also depends on how the U.S. stock market performs."

Stock markets, like the Dow Jones Industrial average, have a strong correlation with the Australian dollar and both have risen to multi-month highs as investors bet big on riskier assets, bolstered by growing optimism about a global recovery.

Traders said Chinese data showing manufacturing activity at an 18-month high helped mitigate some of the recent loss in appetite for riskier assets like stocks and high-yielders.

China is a major importer of Australian commodities and the strong demand was one reason Australia dodged the global recession so successfully.

In other upbeat news for market sentiment, the Australian government revised its economic growth forecast to 1.5 percent for the year to end-June 2010, up from a 0.5 percent contraction predicted in May [ID:nSYD478854].

The Aussie edged up to $0.9032, from a low of $0.8907 earlier in the session and from $0.8984 late in New York on Friday, but still weaker than $0.9161 seen late here on Friday.

Scutt added that while the Aussie could rise to around $0.9100, technically, the Dow Jones .DJI and the Aussie were looking ripe for a correction.

The Aussie also regained lost ground against the yen AUDJPY=R, rising from a near one-month low of 79.45 to 81.35 yen. Traders said the bounce was on renewed buying by Japanese leveraged players.

The Aussie extended gains against the kiwi AUDNZD=R, rising to its highest in three months at NZ$1.2595. Investors expect the Aussie to gain further with local rates headed higher while those in New Zealand remain low well into the first half of 2010.

Traders said buying in high-yielders was likely to remain subdued ahead of big event risks in the week ahead, including central bank meetings in Europe and the U.S. and the all important U.S non-farm payroll data on Friday. [ID:nN30408927].

The Federal Reserve's rate setting committee, which meets on Tuesday and Wednesday, is expected to keep rates unchanged but there is speculation that it might change its language. That could see markets pricing in a rate hike in the United States sooner than expected.

Australian December bill futures YBAc1 edged lower as some in the market unwound bets of a more aggressive 50 basis point rate hike by the RBA on Tuesday. But bond futures were higher, buoyed by safe-haven inflows.

Three-year futures YTTc1 were 0.01 points higher at 94.87 while the 10-year contract YTCc1 added 0.03 points to 94.45.

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