Dollar at three week high

THE dollar is trading at its highest levels in three weeks as improved market optimism helps push Asian equities higher.

THE dollar is trading at its highest levels in three weeks as improved market optimism helps push Asian equities higher.

At 5.00pm AEST, the Australian dollar was trading at 106.10 US cents, over one US cent higher from 105.02 cents on Friday.

Since 7.00am AEST today, the local unit traded between 105.62 US cents and 106.32 cents.

Easy Forex currency dealer Tony Darvall said movements in equity markets were driving the Australian dollar in the absence of any significant local data.

"We're having quite a good day here, we're back above 106 US cents, there's a little bit of profit-taking going into the European open, but nothing too serious yet," he said.

"There is nothing majorly negative out there at the moment, so the Aussie naturally grinds higher.

"I wouldn't be surprised to see the 106.50 US cent level tested and potentially 107 US cents if it is a really positive day.

"We are seeing the euro break above 145 US cents, and if that continues then that should drag the Aussie higher."

Mr Darvall said currency markets were more likely to focus on US economic data this week, particularly the weekly jobless claims figures that were to be released on Thursday.

At 5.00pm AEST, the Australian dollar was at 81.34 Japanese yen, up from Friday's close of 80.79 yen, and at 72.98 euro cents, up from 72.69 euro cents.

Meanwhile the Australian bond market was weaker on Monday.

At 4.30pm (AEST the September 10-year bond futures contract was trading at 95.580 (implying a yield of 4.420 per cent), down from 95.600 (4.400 per cent) on Friday.

The September three-year bond futures contract was at 96.130 (3.870 per cent), down from 96.160 (3.840 per cent).

UBS interest rate strategist Matthew Johnson said the Australian bond market had weakened, while the Australian dollar and Asian equities gained ground.

"The story that caused the rally in equities in the Asian session and a sell-off in bonds was in the Times of London, saying there will be some sort of government guarantee for European banks," he said.

European leaders are considering providing guarantees over some types of debt sold by banks in a bid to prevent a new credit crunch, the London Sunday Times reported.

Mr Johnson said the bond market would focus on July building approval data to be released by the Australian Bureau of Statistics (ABS) on Tuesday.

On Thursday, the ABS will also publish July retail trade figures and June quarter capital expenditure data.

The Reserve Bank of Australia's trade weighted index was at 76.0, up from 75.4 on Friday.