Caroline Smith and Liam Howitt July 04, 2012
A strong set of retail figures pushed the Australian dollar to a fresh two-month high.
At 1700 AEST the Australian dollar was trading at 102.89 US cents, which was an improvement from Tuesday's 102.64 US cents.
The local currency rose to just above 103 US cents earlier in the day, after official figures showed that retail trade had increased by 0.5 per cent in May - higher than the market's prediction of a 0.2 percent rise.
CMC Markets foreign exchange dealer Tim Waterer said the data had provided a boost for the Australian dollar.
"It's been a real shot in the arm, the better than expected retail numbers has left the Aussie dollar travelling at 103 cents," Mr Waterer said.
ForexCT head of research Steven Dooley said that while the Australian dollar seemed to be continuing its upward trend, events in both Europe and the United States could have an impact later in the week.
"The Aussie dollar is very much in a holding pattern right now," Mr Dooley said.
The European Central Bank is expected to announce its decision on rates later on Thursday evening (Australian time), while non-farm payroll data highlighting the monthly unemployment rate in the United States will be released Friday evening AEST.
"I think we will see traders being cautious over the next 48 hours," Mr Dooley said.
The Australian dollar is expected to trade in a tight range overnight because of the July 4 public holiday in the United States.
At 1700 AEST, the local currency was trading at 82.08 Japanese yen, up from 81.88 yen, and 81.70 euro cents, up from 81.43 cents.
Meanwhile, Australian bond futures prices were lower after the stronger than expected retail figures.
At 1630 AEST on Wednesday, the September 10-year bond futures contract was trading at 96.895 (implying a yield of 3.105 per cent), down from 96.940 (3.060 per cent) on Tuesday.
The September three-year bond futures contract was at 97.460 (2.540 per cent), down from 97.520 (2.480 per cent).
Westpac senior market strategist Damien McColough said the market was responding to a the strong data.
"It's not too surprising when you've had a continuation of a risk sentiment and good retail sales today," he said.
Mr McColough said global bond prices were also weaker, given a generally more optimistic mood by investors, which he expected to continue throughout the week.
The Reserve Bank of Australia's trade weighted index was at 77 up from 76.9 on Tuesday.