Optimism pushes Aust dollar higher

SYDNEY - The Australian dollar closed higher on Thursday as investors continued their enthusiasm for a recovery in the global economy.

However, gains were pared following a weak jobs report that knocked expectations of an interest rate rise by the Reserve Bank of Australia (RBA) next month.

At 1700 AEST, the local currency was trading at US$0.8595/98, up from Wednesday's close of US$0.8574/79.

During the day, the unit moved between US$0.8581 and US$0.8638.

The Australian dollar started the local session stronger at US$0.8609/11, following a firm lead from Wall Street, which closed higher for the fourth consecutive session.

The US Federal Reserve said in its Beige Book report that the outlook for the American economy has become "cautiously positive" with conditions stabilising from the deep recession.

The Dow Jones Industrial Average closed up 0.53 per cent.

CMC Markets foreign exchange trader Tim Waterer said the Australian dollar continued its rise in morning trade before an intraday high around 20 minutes before the release of August jobs report at 1130 AEST.

The Australian Bureau of Statistics (ABS) said 27,100 jobs were lost in August, nearly double the market forecast of 15,000.

Despite the larger than expected decline in total jobs, the unemployment rate remained at 5.8 per cent for the third consecutive month because of a decline in the labour force participation rate to its lowest level since July 2007.

"It was a disappointment with the number of jobs lost in August," Mr Waterer said.

"What it did is give the market give a reason to sell the Aussie dollar back below 86 US cents."

There was still the expectation of a rate hike by the Reserve Bank of Australia in 2009, Mr Waterer said.

"October is looking more out of the question now," Mr Waterer said.

"We have had two days of soft data in a row, with the retail sales disappointing yesterday and the jobs data today.

"It is more likely November or December now being priced by the futures markets."

Mr Waterer said the Australian dollar has been resilient despite the recent weak data.

"The number of job losses disappointed but the unemployment rate held steady," he said.

"The equity market was able to shrug off that jobs data and finish stronger, with the Australian dollar following suit."

The All Ordinaries Index closed up 1.07 per cent, while Japan's Nikkei-225 index ended 1.95 per cent higher.

Financial markets would await the release of initial jobless claims in the US for week ending September 5 for direction during Thursday's offshore session, Mr Waterer said.

The market forecast was for a loss of 560,000 jobs, down from 570,000 the previous week.

"It is wanting to see some improvement in that number each week," Mr Waterer said.

Mr Waterer forecast the Australian dollar to trade between US$0.8550 and US$0.8650 during Thursday's offshore session.

CURRENCY TABLE:

CURRENCY SPOT PREVIOUS CLOSE

AUD/USD 0.8595-98 0.8574-79
AUD/JPY 79.15-20 79.31-34
AUD/EUR 0.5898-04 0.5919-25
AUD/NZD 1.2341-52 1.2345-51
AUD/GBP 0.5191-96 0.5193-99
EUR/USD 1.4570-72 1.4481-84
USD/JPY 92.09-11 92.48-51
EUR/JPY 134.18-22 133.95-97

- AAP