Dollar edges up as more bad news emerges from EU

The Australian dollar rose overnight, despite news that Standard & Poor’s had downgraded the creditworthiness of the euro zone’s bailout fund.

The downgrade, which follows cuts for France and Austria, which lost their AAA-rating, could hurt the European Financial Stability Facility’s (EFSF) ability to raise cheap bailout money.

Bank of New Zealand currency strategist Mike Jones said currency traders were heartened by the muted response on European equity markets last night, in response to the negative headlines.

“It was very much expected by markets, following the big downgrades to France and Austria the night before,” Mr Jones said.

“We didn’t see a lot of fall-out in terms of currency markets.

“The reaction was very muted and, in fact, the Aussie dollar, for the session, was modestly higher.”

By 7am AEDT, the Australian dollar was trading at $US1.0308, up from $US1.0279 on Monday afternoon.

Mr Jones said investors were awaiting Chinese official growth figures, due out in the early afternoon session on Tuesday.

“With the Aussie dollar being strongly leveraged to China, there’s a lot of attention to the extent of the slowing we’ve seen in the Chinese economy.

“In particular, we’ll be watching out for any signs that Chinese momentum is slowing faster than expected.”

He said he expected the Australian dollar to trade between $US1.0260 and $US1.0370 on Tuesday.

- The Age