950824

Australian dollar

drifts lower

SYDNEY: The Australian dollar drifted lower through an aimless session as the market ignored it to concentrate on second-guessing Bundesbank monetary policy.

The omens were never promising after the unit again failed at the US$0.7420 chart barrier offshore and investors everywhere turned cautious in case the German central bank sprang a surprise at its council meeting today.

A strong set of domestic inventory data came and went with barely a raised eyebrow, even though they promised to make next week's June quarter GDP report an upbeat one indeed.

The local dollar had subsided to US$0.7391/96 from an US$0.7422 high offshore and US$0.7405/10 late in Australia on Wednesday.

It was off on the crosses as players took profits after the Bundesbank matched market expectations and trimmed six basis points off its repo rate to 4.39 percent on Wednesday. The unit eased to 1.0945/55 marks and 71.41/51 yen from 1.1019/31 and 71.45/55, and to 52.9 in trade weighted terms from 53.1.

In contrast the risks for Australian monetary policy were all on the upside after a run of strong indicators and a hawkish assessment of inflation prospects by the Reserve Bank.

Today's data showed private capital expenditure in Australia jumped 6.5 percent in the June quarter, more than twice the growth the market had expected. It came hot on the heels of a hefty 3.1 percent rise in inventories reported Wednesday.

Analysts reckoned the boom in investment would add around 0.5 percentage point to GDP growth and taken together with the inventories build-up, strongly suggests the economy accelerated in the June quarter after six months of slowing.

The money market acknowledged the growing risk of a tightening by chopping 15 basis points off the three month bank bill future contract for March next year taking it to 91.80.

That implies an interest rate of 8.20 percent, compared to current official cash rates of 7.5 percent.

Three month US deposits currently pay 5.91 percent while in Germany you would get 4.30 percent for your money.

The yield gap between local bonds and Treasuries widened with the 10-year Commonwealth yield up 11 basis points to 9.25 percent against just 6.59 percent for the 10-year T-bond.

Prime Minister Paul Keating denied there was an increased trisk of a rate rise but the words of a politician ahead of an election tend to hold little water with markets, dealers said.-Reuter