Weak close for Aussie dollar

SYDNEY - The Australian dollar closed lower on Wednesday after surprise falls in retail sales and housing finance commitments data dampened expectations of interest rate rises by the central bank.

At 1700 AEST, the local currency was trading at US$0.8574/79, down from Tuesday's close of US$0.8591/94.

During the day, the unit moved between US$0.8661 and US$0.8573, the latter reached just before the close of the local trading day.

The Australian dollar had opened firmer for the fourth straight local session at US$0.8617/19.

The currency then climbed to a fresh 12-month high of US$0.8661 shortly after the release of a Westpac-Melbourne Institute report showing consumer confidence in September was at its highest level since July 2007.

But the unit changed direction after 1130 AEST, when Australian Bureau of Statistics figures showed retail sales were weaker in July and the number of home loan approvals for owner-occupied housing for the same month also fell.

The debt futures market had priced the odds of an October interest rate rise bythe Reserve Bank of Australia (RBA) at close to 50 per cent after the consumer confidence data.

But that fell to about a one-in-four chance after the ABS data.

Westpac Banking Corporation senior currency strategist Sean Callow said market was "certainly caught off guard" by the retail sales numbers.

"The bottom line is interest rate markets and bond markets have priced in the RBA to tighten twice before year end and they've had that view for a while," he said.

"That's clearly been a factor for Aussie strength so when you see fresh news that shakes that view somewhat, it makes total sense for the Aussie to sell off."

Retail trade fell 1.0 per cent in July, while housing finance commitments backpedalled 2.0 per cent in the same month.

Both reports were worse than market expectations.

The Australian dollar drifted back up towards US$0.8600 during the afternoon, but lost about 0.4 US cents in the final hour of trade when European markets opened.

Mr Callow said he expected the Australian dollar to find support at US$0.8540 during Wednesday night's (AEST) offshore session.

"I think there will still be buying on dips," Mr Callow said.

CURRENCY TABLE:

CURRENCY SPOT PREVIOUS CLOSE
AUD/USD 0.8574-79 0.8591-94
AUD/JPY 79.31-34 79.45-49
AUD/EUR 0.5919-25 0.5968-74
AUD/NZD 1.2345-51 1.2358-72
AUD/GBP 0.5193-99 0.5232-40
EUR/USD 1.4481-84 1.4395-97
USD/JPY 92.48-51 92.47-50
EUR/JPY 133.95-97 133.06-09

- AAP