US job data may knock the dollar
The dollar is trading off its three-month lows but remains in a holding pattern, as financial markets look towards US jobs data for guidance on when the Federal Reserve could start to reduce its bond purchases.
The local currency is still on track to record a seventh-straight week of declines, but recovered from its low of US89.99¢ to trade around US90.60¢ on Friday.
The US economic data, which will include November payrolls figures and the unemployment rate, could see analysts bring forward their March tapering expectations, placing further pressure on the Australian dollar, currency strategists said.
"It's a huge risk event and markets will want to see that outcome before they start to become a bit more definitive about a possible December taper," NAB currency strategist Emma Lawson said.
Traders also looked through a report on Friday showing that the construction sector expanded for the second straight month.
The Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (PCI) rose 0.8 points to 55.2 in November, on the back of an improvement in new orders and deliveries. It was the highest reading since November 2010.
At the same time, heightened tapering expectations saw yields for 10-year Australian government bonds rise to two-year highs at 4.44 per cent.
"That's the highest it's been since the Fed has been running QE3," UBS interest rate strategist Andrew Lilley said. "That's due to the expectation that QE is likely to be coming to an end. There's still some open debate about how far the Fed has driven the 10-year yield longer and how much the removal of the expectation of further accommodation would cause yields to rise."
Yields on 10-year US Treasuries also returned to September highs, trading around 2.87 per cent.
The Australian dollar is set to be one of the main currencies that could feel the brunt of a strong payrolls report, Citi currency strategist Todd Elmer said. "I think there are a lot of channels by which this [tapering] has fairly far reaching effects that are negative for the Aussie."