Aust dollar opens firmer, lifted by oil

THE Australian dollar has opened firmer, gaining support from a higher oil price and expectations of more rate cuts by the European Central Bank.

At 0700 AEDT, the Australian dollar was trading at $US0.7150/53, up from Monday's close of $US0.7130/38.
During offshore trading, the local unit moved between $US0.7063 and $US0.7182.

It was the Australian dollar's highest opening on the local session since October 7, when the currency started at $US0.7200/05.

ANZ senior markets dealer Alex Sinton said the Australian dollar was initially dragged lower after the US dollar rose on expectations American president-elect Barack Obama's stimulus package will boost the deteriorating US economy.

"Initially, like the kiwi, we were dragged down by a weaker euro and stronger US," Mr Sinton said from Auckland.

"This was on the news of Obama looking for the $US300 billion ($A419.4 billion) tax cut scenario, which is part of the stimulus package.

"That helped the US dollar."

Mr Sinton said a weaker euro also lowered the Australian dollar in early offshore trading.

"The euro was weakened overnight on the increasing belief that euro interest rates going lower, with their next decision on 15 January," he said.

"It dragged the Aussie and the kiwi lower initially."

But the trans-Tasman currencies gained as investors bought the currencies to take advantage of the higher interest rates on offer in both countries, Mr Sinton said.

In Australia the overnight cash rate is 4.25 per cent and New Zealand's is five per cent while the ECB's target lending rate is 2.50 per cent and the target range is zero to 0.25 per cent in the US.

"There was some buyers of the Aussie and the kiwi against the euro," he said.

"Our interest rates are moving lower, but we are a lot away from zero interest rates than the European, British and the others are likely to be."

The Australian dollar also received help from the higher price of oil, Mr Sinton said.

Oil rose as ongoing fighting in Gaza and a gas dispute between Russia and Ukraine increased concerns about energy supplies .

Crude oil futures for February delivery rose $US2.47, or 5.33 per cent to $US48.81 a barrel on the New York Mercantile Exchange.

The sole piece of local data due on Tuesday is the Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI) for December.

Mr Sinton said with little data to be released, the Australian dollar should have a day of consolidation, trading between $US0.7105 and 0.7200.