Dollar holds up well after weak trade data

THE dollar was over US0.5c higher at noon (AEST), despite weaker than expected trade figures.

THE dollar was over US0.5c higher at noon (AEST), despite weaker than expected trade figures.

At noon (AEST), the local unit was trading at US107.51c, up from US106.84c yesterday.

Since 7am, the dollar has traded between US106.85c and US107.55c.

The currency reached US110.11c earlier this month, a record high since the it was floated in December 1983.

At 11.30am, the Australian Bureau of Statistics (ABS) reported that Australia had posted a seasonally adjusted current account deficit of $10.447 billion in the March quarter.

This followed an upwardly revised deficit of $8.019 billion in the December quarter.

The median market forecast was for a deficit of $10.0 billion in the March quarter.

The increase of $7.781 million in the deficit on goods and services in chain volume terms (adjusted for price changes) would detract 2.4 percentage points from growth in the March quarter measure of gross domestic product (GDP), the ABS said.

The ABS also reported Australian residential building approvals fell 1.3 per cent to 13,377 units in April, seasonally adjusted, compared to a downwardly revised 13,546 units in March.

St George chief economist Besa Deda said the most disappointing part of the two sets of data was the net exports component of the trade figures.

"It really sets up expectations that tomorrow's GDP (gross domestic product) number will be quite a large contraction," Ms Deda said.

Following the trade data, St George revised its forecasts for March quarter GDP, due to be released by the ABS tomorrow, to a fall of 1.0 per cent from a 0.6 per cent contraction.

Ms Deda said if the national accounts data confirmed the negative expectations, the central bank probably would not raise the cash rate when it meets next week.

"Our long-held expectation has been that (the RBA board) would be waiting until August to be raising rates, and I think that the data confirms that," she said.

Ms Deda said the dollar hadn't yet moved greatly, in reaction to the data.

"We have the UK and the US on holidays overnight, so perhaps when we have the European and New York trading sessions, the Aussie dollar might just come down a little bit further, ... positioning ahead of the GDP."

Apart from tomorrow's local GDP data, currency traders were waiting also on US employment data, with the ADP employment report due on Wednesday and non-farm payroll data due on Thursday.

Meanwhile, the bond market was weaker at midday.

At noon, the June 10-year bond futures contract was trading at 94.775 (implying a yield of 5.225 per cent), down from 94.810 (5.190 per cent) yesterday.

The June three-year bond futures contract was at 95.120 (4.880 per cent), down from 95.130 (4.870 per cent).