Dollar drops one cent after Fed minutes

THE Australian dollar has fallen more than one US cent as it looks likely there could be an early end to the US Federal Reserve's stimulus program.

At 7am AEDT today, the local unit was trading at 102.44 US cents, down from 103.65 cents yesterday.

The currency reached an overnight low of 102.43, its weakest level since Tuesday of last week.

The minutes of the Fed's January policy meeting show that some members were worried that the bond-buying programs could eventually escalate inflation and unsettle financial markets.

BK Asset Management managing director Kathy Lien said the US dollar rallied against all the major currencies after the remarks were released.

"The real reason (the Fed) is considering an end to the program is because they see a significant improvement in the labour market," she said from New York.

Ms Lien also said the Australian dollar was one of the hardest hit because the Reserve Bank of Australia's (RBA) monetary policy stance was in stark contrast to what the US Federal Reserve was now considering.

"Australia is looking at the possibility of cutting the interest rate next month and the US is looking at the possibility of unwinding some of this emergency stimulus," she said.

Tomorrow, RBA governor Glenn Stevens will appear before the House of Representatives committee. Ms Lien said the testimony has become more important after the release of the US central bank's January minutes.

"The Aussie dollar has fallen quite a bit, much more than the euro, the yen or the Canadian dollar," she said. "The reason for that is because the RBA is looking at the possibility of easing."

"If the governor confirms this, that would compound the losses and could take the Aussie dollar to a level below 102.00 US cents."

Ms Lien said she expected the Australian dollar to trade in a range between 101.75 US cents and 102.75 cents today.

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Dollar higher after upbeat RBA minutes

THE Australian dollar is a quarter of a US cent higher after the central bank released the minutes of its February board meeting.

At 12pm AEDT today, the local unit was trading at 103.25 US cents, up from 102.95 cents yesterday.

The Reserve Bank of Australia (RBA) kept the cash rate at three per cent at its first meeting of the year, after cutting it by a quarter of a percentage point at the previous meeting in December. The RBA minutes indicated the bank would wait to see how recent interest rate cuts flowed through the economy before deciding if it needed to cut the cash rate further in 2013.

Easy Forex currency dealer Tony Darvall said the minutes were generally positive and spoke about the stabilisation of the Chinese economy.

"They talked about stronger domestic demand across Asia. They're pretty strong comments," he said. "Also, that the iron ore price has increased, which is going to help."

"They weren't focusing on the rate cuts or the downside to the economy."

Mr Darvall said the next focus for currency markets would be RBA Governor Glenn Steven's testimony before a parliamentary committee on Friday.

"They will grill him on the high value of the Aussie dollar, that's for sure," he said. "Our central bank is very independent compared to most countries, and the bar for intervention (in currency markets) has been set very high. At 110.00 US cents they weren't intervening or even talking about it."

Mr Darvall said he expected the Australian dollar to trade in a range between 103.10 US cents and 103.40 cents this afternoon.

Meanwhile, the Australian bond market was weaker. At 12pm AEDT today, the March 10-year bond futures contract was trading at 96.445 (implying a yield of 3.555 per cent), down from 96.465 (3.535 per cent) yesterday. The March three-year bond futures contract was at 97.080 (2.920 per cent), down from 97.100 (2.900 per cent).

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