The Australian dollar hit 14-month highs today but failed to retain gains as local investors sold into its strength, and after a late jump in the US dollar on speculation officials may try to support the US currency.
At the local close, the dollar was down almost 1 cent to a low of $US0.8795, from a high of $US0.8860, but still slightly up from yesterday’s close of $US0.8790. Against the yen, it slid to 79.16, off the day's high of 79.55.
The Aussie skidded late afternoon after a European Union official said the Eurogroup will discuss the euro's strength.
The comment prompted talk that official support measures may be introduced for the ailing US dollar.
"People are concerned that there would be a more co-ordinated approach to strength the US dollar," said Sue Trinh, an analyst at RBC Capital.
The euro was sold off within minutes to the day's low of $US1.4552, while the ICE Futures dollar index surged to the day's high of 77.105.
One trader said the Aussie was also weighed by selling by Australian companies earlier in the day around $US0.8830/40.
Another trader in Tokyo said hedge funds were trimming their holdings of the Aussie ahead of a US jobs report on Friday. The report is closely watched by investors and tends to move markets.
For now, charts show that near-term resistance for the Aussie is seen at $US0.8870 and $US0.8900, then $US0.8952.
Though some analysts warned the Aussie looked increasingly overbought - Deutsche Bank said on Thursday it looked pricey against the US dollar - the currency remains firmly wedged within an upward trend channel that started in mid-February.
Among the world's most traded currencies, the Aussie and the New Zealand dollar are by far the biggest outperformers, up around a quarter since January.
That the world economy is on the mend and commodity prices are recovering have aided the pair, commonly seen as commodity currencies by investors.
In the Aussie's case, speculation that local interest rates may rise by 25 basis points by November, from a record low of 3 per cent now, has helped too. November interbank futures show an implied rate of 3.22 per cent.
Speculation the Reserve Bank of Australia could tighten at its next monthly policy meeting on October 6 is mounting as well.
Implied money market rates show investors are now mulling a one-in-three chance of a move next week, up from just a one-in-five chance on Tuesday.
Aussie bond futures bounced on Thursday after two days of heavy losses, as investors squared up ahead of the payrolls report.
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