Tuesday, September 05, 2006

Dollar sidelined as yen powers on

By Carrie LaFrenz
September 05, 2006 06:24pm



THE dollar took a breather today, but the Japanese yen powered ahead on the back of strong capital expenditure figures (CAPEX).

At 5pm (AEST) the local currency was trading at 76.93 US cents, down from yesterday's close of 77.11.

Macquarie Bank divisional director Geoff Bowmer said the local unit took a breather today, lacking direction due to the US Labour Day holiday.

He said the real story on the day was the Japanese yen.

“As some of those yen crosses are unwound, due to the strong CAPEX figures in Japan, the yen has strengthened a bit today again,” he said.

“That has translated to some US dollar weakness.”

Mr Bowmer said over the past year, moves that have been typically yen-related had “morphed” into a general US dollar story.

“The US dollar weakness has acted to support the Australian dollar at about 77 US cents,” he said.

Mr Bowmer said ahead of the Reserve Bank of Australia's announcement on interest rates tomorrow and the release of the national accounts data, US dollar weakness alone is not enough to sustain the local currency's move higher.

Meanwhile, economists made last minute adjustments to their gross domestic product growth (GDP) estimates as they prepare for national accounts.

Estimates of today's government spending data imply a positive contribution to growth in GDP of about one third of one percentage point in the June quarter, AAP economist Garry Shilson-Josling said.

Government final consumption expenditure rose by 1.1 per cent in the quarter, while public sector gross fixed capital formation was up by 3.4 per cent, the Australian Bureau of Statistics said.

Total public sector spending, which makes up about 22 per cent of GDP, was up by 1.5 per cent.

The new market median for GDP growth in the June quarter is 0.7 per cent and 2.6 annually.

During the day the Australian dollar reached a low of 75.94 US cents and a high of 77.19, a level not reached since mid May.

It finished at 89.08 yen from yesterday's close of 89.80 yen and at 59.92 euro cents from 59.98.

The euro was at 1.2838 US dollars from 1.2854 and was at 148.65 yen from 149.69 yen.

The US dollar was at 115.81 yen from 116.47.

Meanwhile, Australian bonds ended the day weaker amid thin trading.

At 4.30pm (AEST) the yield on the Commonwealth Government April 2015 bond was 5.645 per cent compared to yesterday's close of 5.640 per cent, while the yield on the August 2008 bond was 5.895 per cent from 5.855 per cent.

On the Sydney Futures Exchange, the September 10-year bond futures contract price was at 94.360 from yesterday's close of 94.365, while the September three-year bond contract price was at 94.160 compared to 94.190.

Westpac senior market strategist Damien McColough said local bonds struggled in absence of offshore leads.

“There has been very low volume, obviously awaiting the US to come back to see what kind of reaction they have after the long weekend,” he said.

The 90-day bank bill rate was at 6.205 per cent today from yesterday's close of 6.195 per cent, while the 180-day rate was at 6.315 per cent from 6.305 per cent.

At 4pm the dollar on the Reserve Bank of Australia's trade weighted index (TWI) was unchanged from yesterday's close of 64.1 points.

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