aussie up on mid east worries

SYDNEY, Dec 29 (Reuters) - The Australian dollar rose to a
week high against the dollar on Monday as violence in the Middle East stoked worries of disruptions in oil supplies, pushing up oil and metal prices, and lifting commodity-linked currencies.
Traders said a stronger euro , which struck a record
high against the sterling on Monday, also helped lift
the Aussie against the dollar [USD/].
Oil prices rose as much as $2 to nearly $40 a barrel
on Monday as ongoing violence in the Gaza strip between Israel and Hamas stoked concerns of supply disruptions.
"At the moment, the market is moving on what is happening in
the Middle East," said Francisco Solar, a senior currency dealer
at Easy Forex, adding that the impact was exaggerated by thin
trading conditions.
The Aussie was traded at $0.6863, having reached $0.6888 at
one point the highest since Dec 22.
Gold rose more than 2 percent on Monday as the Middle East
violence spurred safe-haven buying in bullion. [GOL/] Copper
futures prices in London and Shanghai were up as well. [MET/L]
Higher commodity prices are good for Australia because
commodities, such as coal, wheat and iron ore, make up about half
of the country's exports.
Aussie also firmed as far as a 1-½ week high of 62.43 yen
, compared to 62.21 yen on Friday, in part helped by
talk the Ministry of Finance might sanction intervention.
[ID:nT278179]
But traders said the local dollar is vulnerable to selling in
the new year when investors refocus on the health of the
Australian economy, which is flirting with its first recession in
17 years.
"Investors are stepping back somewhat so there is stability
in the markets right now, but people may be reverting back to
fundamentals in the new year," Solar said.
The miserable outlook for Australia's economy lent support to
bonds, however, pushing prices for 10-year Australian bond
futures to a record high.
The 10-year Australian bond future contract rose
0.120 points to a record high of 96.020. The 10-year bond
had an implied yield of 3.98 percent on Monday.
Bill futures <0#YBA:> were up as investors priced in further
sharp rate cuts next year. The cash rate has already fallen 300
basis points since September to 4.25 percent, and is seen
dropping to around 3.0 percent by June.
Investors' concerns the global economy may be stuck in a long
and deep recession were stoked again after data showed on Friday
factories in Japan, Australia's second-largest trading partner
after China, cut output at a record 8.1 percent in November.
That fuelled speculation the Bank of Japan may use the
quantitative easing policy it adopted for five years until 2006
to pull Japan out of a decade of deflation.
(Comparisons from Sydney close on Dec. 24)
---------------(Snapshot at 4:27 p.m./0527 GMT)-----------------
FUTURES CASH YIELD 90-DAY BILL
90-DAY BILL (MAR) 96.900(+0.020) 4.03 (4.12)
3-YR BOND (MAR) 96.640(+0.080) 3.15 (3.21)
10-YR BOND (MAR) 96.020(+0.120) 3.99 (4.09)
AUD/USD 0.6863 (0.6781) US 10-YR 2.13 (2.16)
----------------------------------------------------------------
AUD VS 2-YR 10-YR *AUD 3-YR/10-YR SPREAD
USD +194 (+199) +186 (+193) *FUTURES +0.620 (+0.660)
CAD +162 (+165) +119 (+128) *AUD 2-YR/10-YR SPREAD
NZD -165 (-162) -91 ( -82) *CASH +116 (+122)
------------------------------------------------------------

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