Dollar above US77c in late trade

The local unit has strengthened as traders digested RBA minutes and Federal Reserve talk.

The Australian dollar was higher on Tuesday against a backdrop of broad-based weakness in the US dollar.

A paper released by Federal Reserve Bank of San Francisco President John Williams was behind the selloff.

The paper, released on Monday in the US, said US central bankers should either raise the Fed’s inflation target from the current 2 per cent or move to a new target based on price levels or economic growth as they set monetary policy. A higher US inflation target could give the Fed more room to keep rates at current levels.

Ray Attrill, head of currency strategy at National Australia Bank, said the paper might be a signal the Fed is shifting toward a more dovish stance.

That position might be further cemented at the coming Jackson Hole conference, where Fed Chairwoman Janet Yellen is set to speak, he said. However, Mr Attrill cautioned that the views in the market were entirely speculative in an otherwise dull trading session.

At 5.30pm (AEST) on Tuesday, the local unit was trading at US77.09 cents, up from US76.74c on Monday.

The currency had slipped after the Reserve Bank released, at 11.30am (AEST), the minutes from the August board meeting that resulted in a cash rate cut. The minutes failed to provide guidance on future interest rate moves, pushing the currency slightly lower, but by afternoon trade it was back in positive territory, RBC Capital Markets senior economist Su-Lin Ong said. “The reaction to the minutes has been limited because there was no new news,” she said.

“But most notable was that it did not say much about the currency despite its general strength and this gave it the green light to climb a little higher.” Ms Ong said traders were waiting for official Australian wages growth data on Wednesday and official employment figures due Thursday.

A string of US data, including inflation data for July, is due on Tuesday night, Australian time.

Ms Ong said the most crucial data that could shape the interest rate outlook for the US and affect currency movements will be the inflation numbers.

- Dow Jones newswires, AAP