Dollar holds ground after overnight rally

THE Australian dollar remains higher after rallying sharply overnight on positive news in Europe and China.

THE Australian dollar remains higher after rallying sharply overnight on positive news in Europe and China.

At 1200 AEST on Friday, the currency was trading at 104.51 US cents, up from 104.08 US cents on Thursday.

Easy Forex currency dealer Tony Darvall said the Australian dollar had moved only slightly during Friday morning after rallying on Thursday night.

"There is a lot of indecision about where we are going and a lot of people taking profits so the market's range isn't very long," he said.

The currency moved higher on reports the Chinese government was preparing to announce stimulus measures.

A news report from the Shanghai Securities News on Thursday fuelled speculation the Chinese government would announce 10 measures to support equities.

The Australian dollar received further support as markets reacted positively to Spain's 2013 budget, released overnight, which promised to meet the country's deficit reduction through further spending cuts.

The budget is expected to ease the path for a possible bailout from the European Central Bank to lower the country's high borrowing costs.

Mr Darvall said the positive sentiment could carry on into Friday night, depending on the results of stress tests conducted on Spain's banking system, to be released during the European session.

"The Aussie is going to more or less follow the euro and if the stress test is strong it's most likely going to test that 104.80-105 (US cent) level," he said.

Meanwhile, Australian bond futures prices were lower at noon.

At 1200 AEST on Friday, the December 10-year bond futures contract was trading at 97.060 (implying a yield of 2.940 per cent), down from 97.085 (implying a yield of 2.915 per cent) on Thursday.

The December three-year bond futures contract was at 97.590 (2.410 per cent), down from 97.650 (2.350 per cent).