Softer greenback gives dollar a boost

The Australian dollar has held on to strong overnight gains, despite volatility on Asian markets.

The Australian dollar has held on to strong overnight gains, despite volatility on Asian markets.

In late Friday trading, the local unit was trading at US95.94¢, up from US94.77¢ on Thursday.

Speculation the US Federal Reserve will soon wind back its third round of bond purchases, known as quantitative easing, has caused the dollar to fall against the greenback in recent weeks.

However, expectations that the Fed will not has helped the Australian dollar rally.

Commonwealth Bank currency strategist Peter Dragicevich said the weaker US dollar had helped support the local currency.

"The Aussie has drifted a little bit lower but it has still managed to keep most of [Thursday's] gains so we've ended the week higher than where we started," he said.

A lack of local economic data and volatility on Japanese financial markets has moved currencies around. The strength of the local currency has been underpinned by a softer US currency.

"A lot of people have pared back their expectations for quantitative easing in the US so that has weakened the US dollar and supported the Aussie," Mr Dragicevich said.

On Friday night, Australian time, the US will release consumer confidence figures for June and the producer price index - the price of goods at the farm or factory gate.

Meanwhile, bond futures prices weakened slightly as investors anticipate a slow end to quantitative easing ahead of thew Fed's meeting next week. The June 10-year bond futures contract was trading at 96.630 (implying a yield of 3.370 per cent), up from 96.605 (3.395 per cent) on Thursday. The June three-year contract was at 97.420 (2.680 per cent), down from 97.425 (2.575 per cent).

Commonwealth Bank head interest rate strategist Philip Brown said the weakness was due to technical readjustment, with three-year-bonds being sold off.

Mr Brown said the Fed was trying to remind the market that it will start tapering its quantitative easing program.

"They seem to have done that fairly effectively and the market seems to have taken that view and decided they're going to do that immediately."

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