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AAP

2012-11-22

The Australian dollar is higher on further signs economic conditions in China, the world's second largest economy, are improving.

At 1700 AEDT on Thursday, the Australian dollar was trading at 103.84 US cents, up from 103.56 US cents on Wednesday afternoon.

Forex CT head of research Steven Dooley said the Australian dollar moved higher on stronger than expected Chinese manufacturing data.

HSBC's monthly Flash Chinese manufacturing Purchasing Managers Index (PMI) rose to 50.4 in November, from 49.5 a month earlier.

A reading of more than 50 indicates an expansion in the sector, while a reading of below 50 indicates a contraction.

"It was the first time that index has been above that key level of 50 since October 2011," Mr Dooley said.

He said an uncertain international backdrop, particularly with ongoing `fiscal cliff' negotiations in the US, had diminished demand for the Australian dollar.

"People just aren't comfortable pushing the Aussie dollar higher at the moment so we saw a bit of a sell down after that initial rally."

Republicans and Democrats in the US are negotiating possible measures to bring down the country's deficit to avoid the `fiscal cliff' of spending cuts and tax hikes due to automatically apply in early 2013.

Mr Dooley said that with the US markets closed overnight on Thursday due to the Thanksgiving holiday, currency markets were likely to remain relatively quiet heading into the weekend.

At 1700 AEDT, the Australian dollar was at 85.62 Japanese yen, up from 84.81 yen on Wednesday and at 80.83 euro cents, down from 81.21 euro cents.

Meanwhile, Australian bond futures prices fell following the Chinese data.

At 1630 AEDT on Thursday, the December 10-year bond futures contract was at 96.830 (implying a yield of 3.170 per cent), down from 96.880 (3.120 per cent), on Wednesday.

The December three-year bond futures contract was trading at 97.320 (2.680 per cent), down from 97.380 (2.620 per cent).

Evan Schwarten