Dollar higher after China bank calms fears

THE dollar is higher after China's central bank moved to calm fears that the world's second largest economy faces a credit crisis.

Dollar higher after China bank calms fears

THE Australian dollar is higher after China's central bank moved to calm fears that the world's second largest economy faces a credit crisis.

At 12pm AEST today, the local unit was trading at 92.62 US cents, up from 92.55 cents yesterday.

The People's Bank of China has announced it will provide "liquidity support" to banks that run into cash shortfalls after a shortage of money in credit markets led to fears the country faced a credit crisis.

The news offered some support for the local currency after a raft of data showed the US economy was strengthening, giving rise to a surge in the US dollar.

Easy Forex senior dealer Francisco Solar said the Australian dollar was being hit on two fronts: concerning growth figures out of China and positive US data driving the greenback upward.

He said the Australian dollar had bounced after the Chinese central bank statement, but talk of a credit crunch was still sending shock waves through the Asian region and putting downward pressure on the local currency.

"The markets are getting a little bit sceptical, considering the poor numbers from that part of the world and increasing talk that (China's) GDP (gross domestic product) for this year is going to be in the low seven per cent (range)," Mr Solar said.

"If the markets feel that the numbers are coming in very weak, they could start really questioning the (Chinese) central bank's ability to maintain liquidity to avoid a credit crunch.

"The Aussie is very much to-and-fro, sentiment driven at the moment and anything to suggest that things are not looking good in that part of the world is going to push the Aussie much further down."

Mr Solar said investors would await the release of US GDP figures tonight, Australian time.

"If GDP comes in strong, the market will assume that the Federal Reserve will rein in some of that stimulus sooner rather than later. That'll be strong for the US dollar, weaker for the Aussie," he said.

Meanwhile, Australian bond prices are lower after stronger-than-expected US economic data prompted a sell-off in US Treasury bonds.

At noon, the September 10-year bond futures contract was trading at 96.100 (implying a yield of 3.900 per cent), down from 96.175 (3.825 per cent) yesterday.

The September three-year bond futures contract was at 97.040 (2.960 per cent), down from 97.090 (2.910 per cent).

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