The Australian dollar reclaimed ground above 91 US cents on Monday after demand for higher-yielding currencies got a boost from news that Dubai World had averted a possible debt default. Dubai said on Monday it had received $10 billion from fellow United Arab Emirates member Abu Dhabi to help it repay a $4.1 billion Islamic bond maturing later in the day.
Last month, news Dubai World was likely to default had rattled financial markets and led to a broad sell-off in riskier assets and high-yielding currencies. That was followed by Fitch downgrading Greece, raising broader concerns about sovereign debt defaults.
"The Dubai World news takes away one uncertainty that had led to a US dollar pullback," said Stephen Roberts, economist at Nomura, Sydney. "It has given fresh impetus to investors to buy risk and when anything like that happens it tends to support the Australian dollar."
By evening, the Aussie was at $0.9106, having risen to $0.9117 from around $0.9060 before the Dubai news. It idled below 91 cents for most of the day, having lost 1/2 a US cent on Friday. The US dollar was boosted by speculation the Federal Reserve could start to tighten earlier than previously thought after upbeat US data on Friday. Retail sales posted the largest advance since August last month, while consumer sentiment improved sharply in December.
Fed futures moved to price in a good chance a 25 basis point hike by mid-2010. The Fed starts its two-day meet on Tuesday and is likely to keep rates unchanged near zero. But all eyes are on the accompanying statement for any hint of a hawkish shift in bias by the Fed.
The Aussie rose on the yen to around 80.84 yen, as the developments in Dubai led to a fresh sell-off in the Japanese currency. Lower-yielding currencies like the yen tend to get sold off on upbeat news about a global recovery. Minutes of the RBA's last policy meeting are due on Tuesday and should reiterate the central bank's confidence in the economic outlook and leave the door open for more tightening. Australian bond futures were mixed, with three-year bond futures up by 0.025 points at around 95.10, while the 10-year contract eased 0.015 points to 94.455. These December contracts expire on Tuesday.
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