Dollar higher on bad US economic news

THE dollar was higher after the US dollar fell sharply on a night of bad economic news from the US.

THE dollar was higher after the US dollar fell sharply on a night of bad economic news from the US.

At noon (AEST), the dollar was trading at US106.86c, up/down from US106.44c yesterday.

Since 7am, the local unit traded between US106.04c and US107.16c.

Overnight, Moody's Investors Service warned of a credit rating downgrade for the US if there is no resolution on the nation's borrowing limit.

It was also announced there was a smaller-than-expected drop in US jobless claims last week and that April factory orders were weaker.

Commonwealth Bank chief currency strategist Richard Grace said the dollar rose on the back of US dollar weakness, but had lost some momentum in the local session.

"The sell-off in the US dollar and the buying of the euro and the Aussie dollar has just petered out," Mr Grace said.

"One of the key driving factors for the rise in the Australian dollar overnight was those Moody's comments."

Mr Grace said the market would now be focusing on US non-farm payroll figures for May, a key measure of unemployment.

He expects the dollar to trade in a range between US106.6c and US107.2c until the London markets open late this afternoon.

Meanwhile, the bond market was weaker at midday today.

At noon, the June 10-year bond futures contract was trading at 94.745 (implying a yield of 2.255 per cent), down from 94.770 (5.230 per cent) yesterday.

The June three-year bond futures contract was at 95.080 (4.920 per cent), level with its previous local close.