Weak business confidence pulls Australian dollar down by a third of a US cent.
The Australian dollar has seen a slight drop in quiet trade just recently as investors display weak business confidence, sitting on the sidelines awaiting the outcome of a Spanish government bond auction.
At 5pm AEST last April 19, the local unit was seen trading at 103.63 US cents, down from 103.85 cents the other day.
Since 7am AEST, trading of the Australian dollar was between 103.48 US cents and 103.58 cents.
An amount of up to 2.5 billion ($A3.17 billion) in two- and 10-year bonds was set by the Spanish government for auctioning last Thursday night (Australian time).
Earlier in the week, an amount of more than 3.18 billion Euros ($A4.05 billion) was raised by the Spanish government in an auction of short-term government notes and bills.
This successful bond auction was considered as a significant test of market confidence in Spain, after the sharp rising of the costs of government debt via bond yields rose in recent months, which had raised fears of the country's ability to meet its debt commitments.
Francisco Solar, an Easy Forex senior dealer, revealed that the Australian dollar and the euro had been observed trading in tight ranges of less than half a US cent, commenting that trading has been very quiet as investors seems to be more a bit of focus on yesterday's bond auction.
Mr. Solar added that the Spanish government’s bill auction the other day was actually causing a bit of a boost. However, because the markets were waiting for the two-year and 10-year paper set by the Spanish government for auctioning last Thursday, this had caused only a slight movement on the Australian dollar.
Mr. Solar explained further that the news report regarding the Chinese central bank taking into consideration of cutting its reserve ratio requirement - the amount of money commercial banks have to keep on hold - was one of the factors stopping the Australian dollar falling too far last Thursday as this move would free up more funds for banks to lend in an attempt to stimulate the economy.
Mr. Solar stated that the Australian dollar has found a little bit of support on the back of that.
On the other hand, there was a rise on the Australian bond futures prices.
At 4.30pm AEST April 19 (Thursday), there was a trading at 96.230 (implying a yield of 3.770 per cent) of the June 10-year bond futures contract, which was up from 96.190 (3.810 per cent) at Wednesday's close.
The June three-year bond futures contract was seen trading at 96.780 (3.220 per cent), up from 96.760 (3.240 per cent).
According to ANZ senior economist Shane Lee, the main driver for bonds last Thursday was the global developments, commenting that because the data overnight was a bit mixed, so there was no strong lead.
Mr. Lee also stated, "Equities are a bit weaker in Europe and the US market is down as well. US Treasuries rallied a touch overnight and that's flowed through to our market."
Mr. Lee explained that as France and Spain seek a positive investor response to auctions for short- and long-term bonds, Europe would become the focus overnight.
Meanwhile, there was a drop to 76.7 on the Reserve Bank of Australia's trade weighted index last Thursday, from 77.0 last Wednesday.
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