The Australian dollar held firm near three-month peaks on Wednesday as appetite for riskier assets continued to improve on optimism stimulus plans in the world's largest economies would help global growth recover. Media reports said the Japanese government was likely to inject funds into scores of regional banks hurt by the global credit crunch.
That followed news earlier in the week that Germany was planning tax cuts and US President-elect Barack Obama was working on a huge stimulus package. As a major commodities exporter, Australia's economy is more sensitive than most to swings in the global economy.
The Aussie also received a boost from upbeat retail sales data which led investors to trim chances of aggressive interest rate cuts by the Reserve Bank of Australia (RBA) in coming months. Retail sales rose a seasonally adjusted 0.4 percent in November, compared with expectations of a 0.3 percent drop.
Figures for October were also upwardly revised to show a 1.0 percent increase, suggesting consumer demand was resilient despite the looming threat of recession. "As the RBA pauses to assess the impact of its actions to date and the state of the global economy, we think developments thus far, including today's sales data, are consistent with our view for a moderate 50 basis points cut in February," said Su-Lin Ong, senior economist at RBC Capital Markets.
Markets are pricing in a 75 basis point cut by the Reserve Bank of Australia to 3.5 percent next month. The central bank has already slashed the key cash rate by 3 percentage points since September to ward off a recession.
By 4:15 pm (0515 GMT), the Aussie was at $0.7208, up 1 cent from late Tuesday levels here. It advanced as high as $0.7269 offshore, its best level since October 7. It has gained nearly 3 percent in 2009 as risk aversion showed signs of abating. The Aussie was firm near two-month highs, holding around 67.64 yen, compared to 66.25 yen late here on Tuesday, with firmer stock markets underpinning demand for carry trades.
Asian stocks were at two-month highs, following strong leads from Wall Street where shares were lifted by investors' hopes the US government stimulus package would be passed soon. The Aussie extended its winning streak against the euro, trading near two-month highs. The single currency has fallen broadly on increased chances of rate cuts. The European Central Bank meets next week to decide on rates.
Bill futures shed 0.05 points to 96.73, after the retail sales data tempered expectations of hefty rate cuts in the near term. Australian bond futures were higher, taking a breather from the recent sell-off. Three-year futures rose 0.025 points to 96.455 points, while 10-year bond futures contract rose 0.04 points to 95.740 points.