Dollar still rallying, hits one-week high

DOLLAR still riding the wave it caught after the release of strong local inflation figures and Chinese manufacturing data yesterday.

THE dollar is still riding the wave it caught after the release of strong local inflation figures and Chinese manufacturing data yesterday.

At 12pm AEDT today, the local unit was trading at 103.62 US cents, up from 102.96 cents yesterday.

In overnight trade, the currency peaked at 103.67 US cents, its highest level in a week.

Figures out yesterday showed Australia's consumer price index (CPI), the key measure of inflation, rose 1.4 per cent in the September quarter, above the 1.1 per cent rise economists had expected. It was also reported yesterday that China's manufacturing activity contracted in October, but the pace of contraction slowed for a second month in a row.

CMC foreign exchange dealer Tim Waterer said the dollar was maintaining its momentum after the upbeat economic figures.

"In general, the currency has been going against the grain of financial markets in the past 24 hours," he said. "The stronger inflation reading locally, combined with the better looking Chinese data served as a boon for the Australian dollar and that's what has seen it to be among the better currency performers."

Mr Waterer said the stronger-than-expected inflation figures was prompting traders to reassess the chances of a November Reserve Bank of Australia (RBA) interest rate cut, which was becoming less certain.

"With that inflation reading, if the RBA were to cut then, maybe, they wouldn't be so quick with their finger on the trigger," Mr Waterer said. "I'm saying it's an even money bet at this stage."

Mr Waterer said markets were now awaiting the release of a raft of US economic figures out tonight (AEDT), including US initial jobless claims for last week and pending US home sales for October.

He said if the figures were good, US equities could stage a recovery in the next day or so and that could lift the dollar to 104.00 US cents.

Mr Waterer said he expected the local currency to trade in a range between 103.35 and 103.80 US cents this afternoon.

Meanwhile, Australian bond futures prices were lower at noon. At 12pm AEDT today, the December 10-year bond futures contract was trading at 96.835 (implying a yield of 3.165 per cent), down from 96.865 (3.135 per cent) yesterday. The December three-year bond futures contract was at 97.360 (2.640 per cent), down from 97.420 (2.580 per cent).