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SYDNEY - The Australian dollar ended the local session higher as investors sentiment for risk improved in offshore trading and lifted growth-driven currencies.
At 1700 AEDT, the Australian dollar was trading at US$0.6499/02, up 2.22 per cent from Tuesday's close of US$0.6358/62.
During the day, the currency traded between US$0.6459 and US$0.6537.
The Australian dollar started the local session firmer at US$0.6527/31, as investors looked at the federal government's $42 billion stimulus package as a possible brake to more aggressive rate cuts by the Reserve Bank of Australia (RBA).
ABN Amro currency strategist Greg Gibbs said the local dollar firmed in offshore trade as markets absorbed Tuesday's stimulatory events in Australia.
"It gave the Aussie strength and equities markets in the US performed reasonably well," Mr Gibbs said.
"That provided a backdrop for a firmer Aussie in the offshore session."
Mr Gibbs said markets may have started paring their expectations for further aggressive rate cuts by the central bank.
The RBA lowered the cash rate by 100 basis points to a 45-year low of 3.25 per cent on Tuesday.
Lower interest rates in Australia reduces the yield differential with other nations' key interest rates, such as Japan's 0.1 per cent and zero to 0.25 per cent in the US.
A lower yield differential reduces the appeal of the Australian dollar to investors, Mr Gibbs said.
"Perhaps you could read the statement and it is saying that they (RBA) could step back a little in their pace of easing," he said.
"If anything, we have seen interest rate markets price out some of the deep rate cuts," he said.
Investors consolidated profits from the stronger Australian dollar during the local session, Mr Gibbs said.
"There were strong moves in a positive direction over the previous 24 hours and then a modest correction today," Mr Gibbs said.
Mr Gibbs said stronger retail sales data and the soft building approvals data had little effect on the local currency.
Australian retail trade at current prices rose 3.8 per cent in December, the Australian Bureau of Statistics (ABS) said.
ABS figures also showed building approvals fell by 2.9 per cent in December, seasonally adjusted, the sixth consecutive monthly decline.
"It was mixed, one was strong and one was weak," Mr Gibbs said.
"So, there was no net impact."
In Wednesday night's (AEDT) offshore shore session, the US Institute for Supply Management's non-manufacturing survey for January is due.
Also listed for release is the ADP employment report for January, considered a forerunner to US non-farm payrolls due on Friday night (AEDT).
CURRENCY TABLE
CURRENCY SPOT PREVIOUS CLOSE
AUD/USD 0.6499-02 0.6358-62
AUD/JPY 58.23-28 56.88-92
AUD/EUR 0.4986-90 0.4949-53
AUD/NZD 1.2671-89 1.2585-03
AUD/GBP 0.4505-09 0.4480-83
EUR/USD 1.3032-34 1.2845-47
USD/JPY 89.58-62 89.44-46
EUR/JPY 116.77-80 114.89-93
(*Closes taken at 1700 AEDT Previous local session)
At 1600 AEDT, the Reserve Bank of Australia's trade weighted index was at 53.4, up from Tuesday's close of 52.9.
- AAP
