Dollar firms on greenback weakness

THE Aussie dollar gained almost one US cent after talks of a US credit downgrade, potential quantitative easing sent the greenback lower.

THE Australian dollar gained almost one US cent after talks of a US credit downgrade and potential further round of quantitative easing sent the greenback lower.

At 5pm (AEST) today, it was trading at 107.31 US cents, up from 106.39 US cents yesterday.

During the day, the local unit moved between 107.13 US cents and 107.97 US cents, according to Iress data.

OZForex corporate dealer Michael Judge said the Aussie struggled to push past 107.80 US cents during the domestic session, after it jumped almost a cent last night on US dollar weakness.

Rating agency Moody's has threatened to lower the credit rating of the US, saying there was a small but rising risk the US government would default on its debt.

"Those comments from Moody's against a potential US Federal Reserve downgrade overnight have played on investor's minds again today and the (Australia dollar) really has struggled to kick on above 107.80,'' Mr Judge said.

The White House and Congress are yet to agree on a deal to raise America's $13.56 trillion borrowing limit and avoid a default on August 2.

A downgrade would raise interest rates on US Treasury bonds and weaken the greenback.

"Everything was propped up in comparison to the US dollar overnight,'' Mr Judge said.

Comments from the US Federal Reserve chairman Ben Bernanke also offered support to the Australian dollar, saying the central bank would consider further quantitative easing, or buying up of Treasury bonds, if economic conditions worsen.

Mr Judge said events overseas would continue to provide direction to the Australian dollar, overshadowing domestic fundamentals.

The market was waiting for key data releases due overnight, including June consumer price index (CPI) figures from Europe and June retail sales figures from the US.

"It is a wait and see proposition at the moment with the eurozone. It kind of holds the key for global risk aversion,'' Mr Judge said.

The RBA's trade weighted index was at 77.4, up from 77.2 yesterday.