US debt resolution will bolster dollar
The Australian dollar was firmer on Friday after US Congressional Republicans offered to temporarily extend the American debt ceiling.
Late in trading the dollar was at US94.76¢, up from US94.08¢ on Thursday. Demand for the local dollar rose in morning trade after US President Barack Obama and Republican leaders began discussions on extending the borrowing limit for six weeks to avoid a default.
"If there is a feeling that financial Armageddon has been averted, even if it's for a few months, the markets will take it," Easy Forex senior dealer Francisco Solar said.
"And because the Aussie has such a high interest yield, there is some benefit to be had in holding Australian dollars."
Republican House Speaker John Boehner's offer to extend the borrowing authority in exchange for budget concessions also boosted the Australian dollar against the Japanese yen, Mr Solar said.
A weekend debt ceiling breakthrough could help push the Australian dollar even higher, he said.
"If there was something to be announced ... you could see the Aussie push above 95, towards 96," Mr Solar said.
Meanwhile, bond futures contract prices were firmer after the moves towards a resolution on the US debt ceiling.
Demand for fixed income assets rose during the morning on Friday after investors believed the White House was closer to reaching a deal to avoid a debt default. But 10-year prices retreated from their highs when it appeared political leaders had reached no agreement.
"The very early headlines were that no agreement had been reached and we were quite firm on the back of that and the market seemed to get caught long," RBC Capital Markets fixed income strategist Michael Turner said. "We've come back a tiny bit but in general it's been a fairly weak session after a fairly strong open."
The December 10-year bond futures contract was trading at 95.910 (implying a yield of 4.090 per cent), up from 95.875 (4.125 per cent), while the December three-year contract was at 96.860 (3.140 per cent), up from 96.850 (3.150 per cent).