The Australian dollar was slightly lower after Germany’s parliament overwhelmingly approved expanding the powers of the eurozone bailout fund in a major step toward tackling the bloc’s sprawling sovereign debt crisis.
Of 611 MPs present, 523 voted in favour, meaning that Germany in the future will be guaranteeing loans to the bailout fund, the so-called European Financial Stability Facility, or EFSF, of up to 211 billion euros ($A294.57 billion) rather than 123 billion euros so far.
Westpac New Zealand senior market strategist Imre Speizer said risk sentiment improved following the vote which, in turn, pushed the Australian dollar higher.
“Most people expected it to be passed, but the degree of passage was surprising in that a very, very large majority voted for it,” Mr Speizer said.
“It suggests that future votes regarding Europe bailouts should, on the basis of that result, go through with less risk and gives people confidence that the German government is solid enough to pass whatever it wants to pass.”
At 0700 (AEST) on Friday, the Australian dollar was trading at 97.82 US cents, down slightly from 97.95 cents on Thursday.
Labour Department figures released overnight showed US jobless claims fell sharply last week to 391,000 – their lowest level since April.
The previous week’s new claims for unemployment insurance, a measure of the pace of business and government layoffs, was 428,000.
Mr Speizer said this also added to the positive mood on currency markets last night.
“That then starts to push the market away from thinking that we are seeing the US heading into recession.”
Risk sentiment took a turn for the worst at 2340 (AEST) on Thursday, when Swiss National Bank chairman Philipp Hildebrand said the euro crisis could deteriorate in the coming months, Mr Speizer said.
This pushed the Australian dollar down and saw it lose much of its overnight gains.
Mr Speizer said the domestic currency looked weak and may trade under 97 US cents and push towards 98.15 US cents on Friday.
Since 1700 (AEST) on Thursday, the unit has traded between 97.07 US cents and 98.86 US cents.
In economic news on Friday, the federal government releases its final budget outcome.
Lower than expected tax receipts from wages and companies is set to cut $2 billion in revenue from the 2010/11 federal budget compared to forecast five months ago.
