Dollar loses ground on trade deficit numbers

THE dollar was over US0.5c lower at noon, following disappointing foreign trade figures.

THE dollar was over US0.5c lower at noon (AEST), following disappointing foreign trade figures.

At midday today, the local unit was trading at US103.24c, down from yesterday's local close of US103.86c.

Since 7am today, the local currency has traded between US103.24c and US103.73c.

The local unit fell around a quarter of a US cent after the Australian Bureau of Statistics (ABS) reported Australia had posted a trade deficit of $205 million in February, seasonally adjusted, from a downwardly revised surplus of $1.433 billion in January.

This was the first time Australia recorded a deficit since March 2010.

Economists' forecasts had been for a surplus of $1.1 billion for February.

At 11.29am, just before the release of the data, the dollar was trading at US103.53c, and fell to US103.24c by 11.53am.

ICAP senior economist Adam Carr said that while the headline figure had surprised the market, the details revealed a decent result for the month.

"If you look at why February shrank, you can see imports, particularly capital goods imports, actually very strong," Mr Carr said.

"We also didn't see a further collapse in coal exports.

"Generally speaking, it was a very good set of numbers and it shows that the underlying economic growth for Australia is very strong."

He expected the local currency to bounce back today, as the market digested the data.

The next focus for currency traders will be at 2.30pm (AEST) today, when the Reserve Bank of Australia (RBA) board meets and is widely expected to keep the cash rate on hold at 4.75 per cent.

Mr Carr said investors will focus on the wording of the central bank's statement, rather than the decision itself.

"They're certainly not going to say anything that's going to indicate to the market that they're going to cut.

"They're not going to say anything that's going to justify market pricing, so the risk has to be that the market pricing reverses and the Aussie dollar benefits from that."

Meanwhile, the bond market was stronger at noon.

At midday on the ASX 24, the June 10-year bond futures contract price was at 94.465 (implying a yield of 5.535 per cent), up from 94.435 (5.565 per cent) yesterday.

The June three-year bond futures contract was trading at 94.930 (5.070 per cent), up from 94.890 (5.110 per cent) previously.