950823

Australia $

broadly firmer

Sydney: The Australian dollar was broadly firmer in late trade, although off its best levels for the day after profit-takers mobbed an early surge.

Dealers said offshore investors remained well disposed toward the currency based on a improving commodity outlook and a relatively high yield differential. The latter was set to become more attractive with the Bundesbank widely tipped to ease today.

Furthermore, a set of very strong domestic inventories data and a hawkish economic summary from the Reserve Bank promised to at least keep Australian rates steady and even raised the prospect of a tightening down the road.

By 0700 GMT the local dollar was resting at US$0.7405/10 after edging back from a US$0.74254 high, but was still well up on Tuesday's US$0.7371/76 close in Australia.

The first of the week's domestic data proved much stronger than forecast with business inventories leaping 3.1 percent in the June quarter when a modest 0.8 percent gain had been expected. Analysts had thought stocks would detract from GDP growth and were now hastily revising their estimates.

"This will make a huge contribution to expediture based GDP and should see GDP-A rise by a high 1.25 to 1.5 percent for the quarter," said Nigel Stapledon, chief economist at Westpac.

Expenditure-based GDP was expected to dwarf production, raising risks for inflation and keeping pressure on the Reserve Bank's to maintain a tightening bias. The bank showed it was well aware of the dangers inherent in the situation in its annual report today. The current stance of monetary policy was appropriate for the moment, it said, but there were clear risks to inflation ahead.

The RBA said an improvement in the outlooks for the U.S. and Japanese economies and the prospect of a good recovery in the domestic rural sector, meant economic activity over the next year or so was more likely to bounce back than fall away.

This contrasted with the situation in many of Australia's competitors where rates were on an easing track. In the latest move, the Bundesbank cut six basis points off its key repo rate taking it to 4.39 percent.

The relatively large size of the cut and a run of weak German data had increased the chance the bank would reduce its discount rate at its council meeting on Thursday, analysts said.

That prospect helped the local dollar rise to 1.1019/31 marks from 1.0891/02 late Tuesday. It also edged up on the yen to 71.45/55 yen from 71.31/41 and to 53.1 in trade weighted terms from a previous 52.8 close.

The Commodity Research Bureau index eased 0.48 point to 239.44, but analysts saw this as a shallow correction given Friday's near three point jump and noted the index was still close to a five-year high.-Reuter