Dollar rises as inflation, rate rise fears ease

THE Australian dollar was higher on Wednesday, boosted by lower than expected wages data and a stronger domestic equities market.

THE Australian dollar was higher on Wednesday, boosted by lower than expected wages data and a stronger domestic equities market.

At 17:00 (AEST), the Australian dollar was trading at 104.78 US cents, up from 104.44 cents yesterday.

Since 7:00 (AEST), the local unit traded between 104.33 US cents and 104.97 cents.

Official figures showed slower than expected wages growth for the June quarter, which eased inflationary expectations and the prospect of an interest rate rise by the central bank in the next few months.

The figures showed a 0.9 per cent rise in wages, excluding bonuses, in the quarter for a yearly rise of 3.8 per cent, the Australian Bureau of Statistics said.

Rochford Capital director of market risk advisory Derek Mumford said the Australian dollar and share market rose after the wages data.

"That did have a little bit of an affect," he said.

"The actual year on year was below expectations, but I guess it's still relatively high."

Mr Mumford said any gains by the local dollar were likely to be capped due to sluggish economic growth in the US and Europe.

"The Aussie is struggling at the moment to get through 105 US cents, which is a lot to do with a lack of confidence with what is happening in the global economy," he said.

The Bank of England releases the minutes of its August board meeting tonight (AEST) and UK July employment figures also come out during offshore session.

At 17:00 (AEST), the Australian dollar was at 80.29 Japanese yen, slightly up from Tuesday's close of 80.23 yen, and at 72.91 euro cents, up from 72.59 euro cents.

The Australian bond market closed slightly firmer, failing to take much direction from the release of local wage price data.

At 16:30 (AEST), the September 10-year bond futures contract was trading at 95.505 (implying a yield of 4.495 per cent), up from 95.495 (4.505 per cent) on Tuesday.

The September three-year bond futures contract was at 96.190 (3.810 per cent), up from 96.150 (3.850 per cent).

JP Morgan interest rate strategist Sally Auld said the Australian bond market was quiet with then trading volumes.

"Compared to last week, it was a very low volatility day," she said.

"As it turned out, the wages figures came out better than expected and the year-on-year rate was a bit lower than people thought.

"We got a couple of points rally out of that and that was about it."

Ms Auld said with little significant economic data to be released on Thursday or Friday, the Australian bond market's direction was likely to be driven by offshore market sentiment.

The Reserve Bank of Australia's trade weighted index (TWI) was 75.1, up from 75.0 on Tuesday.