Australian dollar hits parity with US dollar again

THE dollar reached parity with the US dollar for the second time in less than a month in offshore markets.

THE dollar reached parity with the US dollar for the second time in less than a month in offshore markets.

The local unit was propelled higher following the first rise in official interest rates since May in Australia.

After closing a smidgen just under parity with the US dollar, the Australian dollar broke through the US dollar level to a high of 1.0002 in early European trading before settling back to 99.84 US cents by 6.30pm (AEDT).

It was the second time Australian dollar had breached parity since it was floated in December 1983, and had briefly risen just beyond one US dollar in early offshore trading on the night of October 15.

At 5pm (AEDT), the Australian dollar was trading at 99.85 US cents, up almost a full US cent from Monday's close of 98.88 US cents.

The Reserve Bank of Australia (RBA) took the cash rate to 4.75 per cent from 4.5 per cent for the first increase in official rates since May.

The local unit rose to 99.68 US cents within a minute after the RBA's move, announced at 1430 AEDT compared to 98.87 US cents just before the decision by the central bank's board.

Between 7am and 5pm (AEDT) today, the local unit traded between 98.67 US cents and 99.91 US cents.

CMC Markets foreign exchange dealer Tim Waterer said the increase in the cash rate to 4.75 per cent, from 4.5 per cent previously, by the RBA surprised the currency market.

"The RBA's proactive interest rate approach was behind the Aussie launching one cent higher after the announcement today," Mr Waterer said of the RBA's move to rein in renewed inflationary pressures expected next year.

He said the local unit had since found some resistance around the 99.80 US cent level.

Mr Waterer had said there was a high possibility the Australian dollar could reach parity with the US dollar overnight.

"I think if we see a push higher in gold tonight and perhaps some positive numbers in equities markets then we could see it hitting parity either during the European or US market hours this evening."

Early on Thursday morning (AEDT) the US Federal Reserve will announce its decision on stimulating the American economy.

The Fed is expected to buy government bonds from banks to encourage lending and stimulate the flagging economy.

At 5pm (AEDT), the Australian dollar was at 80.46 Japanese yen, up from Monday's close of 79.55 yen, and at 71.67 euro cents, up from its previous close of 70.66.

The euro finished at 1.3933 US dollars, down from 1.3994 US dollars, and at 112.28 yen, down from 112.58.
The US dollar was at 80.58 Japanese yen, up from 80.45 yen yesterday.

Australian bonds closed weaker.

At 4.30pm (AEDT) on the ASX 24, the December 10-year bond futures contract was at 94.720 (implying a yield of 5.280 per cent), down from 94.740 (5.260 per cent) yesterday.

The December three-year bond futures contract was at 94.960 (5.040 per cent), down from yesterday's close of 95.060 (4.940).

Nomura Australia chief economist Stephen Roberts said there was little action on the local market in the lead-up to the RBA's decision to take the cash rate higher.

The 90-day bank bill closed at 4.810 per cent, up from 4.760 per cent yesterday, while the 180-day bank bill rate was at 5.010, up from 4.970.

At 4pm (AEDT), the RBA's trade weighted index (TWI) was at 74.1, up from yesterday's close of 73.4.