Australian Dollar Nudged Higher in Light Trading

The Australian dollar nudged higher in light trading today, with much of Asia closed for the Lunar New Year celebrations and a public holiday in Japan.

By late afteroon, the Aussie was trading at $US1.0301, up from US$1.0299 late Friday. It traded as high as $US1.0326 early against the US greenback before falling to an intraday low of $US1.0292.

The Australian currency didn't seem to react to weak government housing data Monday that cooled hopes of a nascent market upturn. Home loan approvals fell 1.5 per cent in December, whereas most economists expected no change. The value of loans given for investment housing fell 2.4 per cent.

"Whilst we remain acutely attuned to the health of the housing market given the central bank's insistence that a recovery is in train, we are sceptical that the data is pointing in this direction," said Michael Turner, a strategist at RBC Capital Markets, in a note to clients.

The Reserve Bank of Australia, or RBA, last week said there were tentative signs Australia's housing market was gaining traction following an extended slump that took place alongside deep interest-rate cuts last year. The RBA kept its benchmark lending rate steady at 3 per cent on February 5, which matches a low reached in 2009 in the depths of the global financial crisis.

The possibility of the RBA choosing to cut rates further this year as the economy remains fragile may continue to weigh on the Aussie dollar.

"With the Australian dollar in some danger of losing a further 0.25 per cent of its yield over the coming months, the currency has not been attracting quite the same levels of carry-trade buying of late which has left it facing risks well skewed to the downside," said Tim Waterer, a senior trader at CMC Markets.

With little local data scheduled, the main focus for traders now is a meeting of Group of 20 finance ministers in Moscow later in the week, which is expected to confront the issue of deliberate currency depreciation.

Joseph Capurso, a strategist at Commonwealth Bank, said the Aussie dollar should regain some of its recent losses.

"Despite the recent pressure, we retain our positive medium-term outlook for the Australian dollar," he said. "The Asian economic outlook continues to improve, volatility remains low, Australia retains a substantial yield advantage over its G-10 peers, and net inflows into AUD-denominated assets should remain firm."