Dollar gets confidence boost

The Australian dollar shot up near four-year peaks versus the yen today, while bouncing elsewhere as a jump in business confidence underpinned the currency.

The dollar advanced to $US1.0444 in late trade, from $US1.0412 early, having touched one-month lows of $US1.0384 on Monday. It gained momentum on the euro, rising to 77.62 euro cents from 77.17 euro cents earlier today.

It made bigger strides against the yen and was last seen flirting with a fresh four-year peak of 95.08 yen scaled last week. It last changed hands at 94.82.

The Aussie has gained 15 per cent on the yen since November with some analysts expecting the rise to continue given the Japanese government's determination to fight deflation and lower the currency.

But Matthew Johnson, a rate strategist at UBS, is not so convinced about further Aussie gains. Instead, he sees it stabilising in the 95-yen area.

It's still the highest since 2008, the year the Aussie peaked at 103.83.


"It's come a long way on a promise and there are a lot of downside risks on promises, in particular with Japanese authorities," he said. "They have made many over the years and none of them worked."

The catalyst for the broad Aussie move higher was a sharp bounce in Australian business confidence in December, according to a private survey, thanks in part to lower interest rates and better news offshore.

The reading gave investors an excuse to modestly pare the chances of further easing by the Reserve Bank of Australia.

Markets pricing now implies a one-in-four chance of a rate cut to a record low 2.75 per cent when the central bank holds its next policy meeting on February 5, from a near one-in-three chance of a cut.

Australian government bonds slipped near their weakest levels since May. The three-year contract fell 0.08 points to 97.130, while the 10-year contract eased 0.09 points to 96.520.