Dollar levels off after heavy losses

THE Australian dollar has held its ground in offshore trade after suffering a big fall yesterday.

The dollar lost almost US1.4 cents in local trade yesterday after weak building approvals data.

THE Australian dollar has held its ground in offshore trade after suffering a big fall yesterday.

At 7am AEST today, the local unit was trading at 90.64 US cents, a touch higher from 90.63 cents yesterday.

The currency lost almost 1.4 US cents in local trade yesterday after weak building approvals data and comments from Reserve Bank of Australia governor Glenn Stevens increased the likelihood of a cash rate cut next week.

Building approvals fell 6.9 per cent in June, completely missing market expectations of a two per cent rise.

The two events sent the Australian dollar below 91.00 US cents for the first time in two weeks, Forex.com research analyst Chris Tedder said.

"The bad data is compounded by the fact that Australia's housing market is one of the only bright spots in the economy, so any indications that it isn't as strong as the market expects is very concerning," Mr Tedder said.

"Later in the session Stevens quashed fears that Australia's slightly better than expected underlying June quarter inflation figures would prevent the RBA from cutting the cash rate."

In a speech in Sydney yesterday Mr Stevens said there were signs of previous interest rate cuts were making an impact on the economy but not enough to prevent further reductions.

The futures market is now pricing in a 91 per cent chance of a August cash rate cut, up from a 79 per cent chance on Monday.

Markets are now awaiting the outcome of the US Federal Reserve's two-day policy meeting, which ends early tomorrow morning, Australian time.

It is expected to make an announcement on the winding down of its $85 billion-a-month economic stimulus plan.

Expectations that the Fed would start tapering the program in September have caused the Australian dollar to drop by more than 10 US cents since early May.

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