Dollar higher ahead of rate decision

THE Australian dollar is slightly higher ahead of the Reserve Bank of Australia's first interest rate decision for 2013.

THE Australian dollar is slightly higher ahead of the Reserve Bank of Australia's first interest rate decision for 2013.

At 12pm AEDT, the Australian dollar was trading at 104.45 US cents, up from 104.37 cents yesterday afternoon.

The RBA holds its first board meeting of the year today, after which it will announce whether or not it will change the cash rate.

Commonwealth Bank currency strategist Joseph Capurso said the Australian dollar rose to 104.59 US cents following the release of trade data for December at 11.30am AEDT, but quickly dropped back to its earlier level.

The Australian Bureau of Statistics (ABS) figures showed that the trade deficit narrowed to $427 million in December, seasonally adjusted, compared with a deficit of $2.788 billion in November.

But, Mr Capurso said, the reduction in the trade deficit was due primarily to a fall in imports, particularly of capital goods, which includes equipment and machinery used in mining and construction.

"That's not a particularly good sign for domestic final demand and also that peak in investment that people keep talking about," he said. "So, the Aussie pretty quickly fell away and has now retraced those gains."

Mr Capurso said he did not expect the Australian dollar to move significantly if the RBA, as is expected, keeps the cash rate on hold at 3.0 per cent.

"I would be surprised if it moves even 20 points (a fifth of a US cent)," he said.

Meanwhile, Australian bond futures were weaker at noon. At 12pm AEDT today, the March 10-year bond futures contract was trading at 96.510 (implying a yield of 3.490 per cent), up from 96.435 (3.565 per cent) on Friday. The March three-year bond futures contract was at 97.120 (2.880 per cent), up from 97.050 (2.950 per cent).