Australian dollar holds firm despite turmoil

The dollar continued to nudge higher today, having stood firm in the face of Greek debt woes and despite efforts to send it lower.

The Australian dollar continued to nudge higher today, having stood firm in the face of Greek debt negotiations and despite aggressive efforts to send it lower.

Traders said the focus of markets now switches to the weekend referendum in Greece. Support has trickled back to the Australian dollar, preventing it from dipping below US76c this week.

At 5pm, the Australian dollar was trading at US77.16c compared with US76.79c late yesterday. The Australian dollar flirted with US76c at the start of the week.

Greece this week became the first developed country to default on loans from the International Monetary Fund, as the rescue program that has sustained it for five years expired. Its creditors rejected Athens’s last-ditch efforts to buy more time.

“It’s no surprise Greece failed to meet the International Monetary Fund loan payment and requested an extension,” said Stephen Innes, senior trader at OANDA.

While talks between Greece and European officials continue, Germany has sent an unambiguous message that there will be no deal from them until Sunday’s referendum.

Local economic data continued to point to a widening gulf between the drivers of the Australian economy, with house prices and building approvals rising, amid more evidence that the investment outlook remained weak.

Capital city house prices rose 2.1 per cent in June from May, according to data from Corelogic. It was the biggest June rise recorded since data was first collected in 1998.

“With interest rates at the lowest levels in a generation, it would have been surprising if there wasn’t strong demand for homes,” said Craig James, chief economist at Commsec.

Still, data on manufacturing activity showed a large decline in June. The Australian Industry Group’s Australian Performance of Manufacturing Index dropped 8.1 points over the month to 44.2. Readings below 50 indicate a contraction in activity.

Ai Group Chief Executive Innes Willox said weak domestic demand was hitting the sector hard. “While the lower Australian dollar continues to support exports, local demand remains generally weak,” he said.

Overnight, Reserve Bank of Australia Governor Glenn Stevens told an audience in London that the world needed to accept that unorthodox monetary policy, in vogue since the global financial crisis, is likely to linger.

He added that to combat the excesses that might emerge as a result of low interest rates, central bankers must look to regulatory measures that might not work.

“In all likelihood, very accommodative policies will continue for quite a while. During that period, central banks will have little choice but to rely in part on regulatory tools to try to contain potential financial excesses, without convincing evidence of the power of such tools,” he said.