Dollar dips as investors take profits

The Australian dollar has lost ground as investors took advantage of this week's strong gains to book profits before the weekend.

Late on Friday, the dollar was trading at US96.05¢, down from US96.66¢ on Thursday, after dipping briefly below US96¢.

"The market is very neutral now," Easy Forex currency dealer Tony Darvall said. "No one is really sure what direction we're about to go here but you don't really want to get caught short going into the weekend or excessively long either.

"This looks exactly like profit taking, and sometimes profit taking can change the market's direction."

Bond futures prices staged a surprise rally.

Reserve Bank deputy governor Philip Lowe on Thursday said non-mining investment was almost at the levels of the 1990s recession. But a falling dollar, low interest rates and improving business confidence should turn things around, he added.

Such comments would normally weaken bonds, UBS interest rate strategist Andrew Lilley said.

"The bond market was in a rally mode for most of the day which is a little bit surprising coming off the back of the relatively upbeat assessment from the deputy governor," Mr Lilley said.

"It's strange because it looks like the RBA is more positive about the growth outlook and we just found out that there's going to be a heck of lot more bonds than we thought there'd be a week ago.

"It seems like people aren't convinced necessarily that any serious change is going to be coming from the RBA."

The December 10-year bond futures contract was trading at 96.065 (implying a yield of 3.935 per cent), up from 96.050 (3.950 per cent) on Thursday. The three-year contract was at 96.970 (3.030 per cent), up from 96.950 (3.050 per cent).

AAP