Dollar higher on positive RBA comments

THE Australian dollar is up nearly half a US cent on the back of positive comments about the local economy by the central back governor.

THE Australian dollar is up nearly half a US cent on the back of positive comments about the local economy by the central back governor.

At 12.02pm AEDT today, the local unit was trading at 102.76 US cents, up from 102.35 cents yesterday.

The Australian dollar spiked to a morning high of 103.09 US cents shortly after Reserve Bank of Australia (RBA) governor Glenn Stevens told a parliamentary committee that recent interest rate cuts were beginning to have an effect on the economy.

Earlier this morning, Sydney time, it dropped to 102.21 US cents - its lowest level since October 15, 2012.

CMC Markets foreign exchange dealer Tim Waterer said the local currency had been given a shot in the arm from Mr Stevens' hawkish assessment of the current state of play.

"The tone struck by Glenn Stevens this morning was supportive of the risk-sensitive Aussie dollar," he said. "That's what sent the Australian dollar over half a cent higher past the 103 (US cent) mark initially."

Mr Waterer said traders also responded positively to the governor's comments about a recovery in the Chinese economy, a stabilising Europe and signs of growth in the US.

"In addition, he didn't hint towards any imminent interest rate cuts and that's what's supplied the initial strength to the Aussie dollar," he said.

However, he said, the suggestion that the RBA was more likely to cut the cash rate than raise it above its current level took some steam out of the local unit.

Mr Waterer expects little movement in the Australian dollar for the rest of today's Sydney session.

"I think that any potential move higher than that will be on hold until we see what mood the European and US markets are in this evening and whether they're still in that risk-off frame of mind that has been the case for the past two trading sessions," he said.

Meanwhile, the Australian bond market was mixed. At 12.02pm AEDT today, the March 10-year bond futures contract was trading at 96.495 (implying a yield of 3.505 per cent), up from 96.485 (3.515 per cent) yesterday. The March three-year bond futures contract was at 97.110 (2.890 per cent), down from 97.130 (2.870 per cent).