Dollar higher despite consumer gloom

THE dollar closed higher today, despite a bout of profit taking and poor consumer sentiment figures. At 5pm (AEST), the dollar was trading at $US0.7709, up from yesterday's close of $US0.7687.

During today's local session, the local currency moved between $US0.7757 and $US0.7684.

The dollar opened the local session at $US0.7746, the highest start to the domestic session since October 2, 2008.

UBS senior economist Matthew Johnson said investors quickly began taking profits on the Australian unit, pulling it down from its early morning high.

He said the unit continued its strong performance until 10.30am, when the local currency was dented following the release of poor consumer sentiment figures.

The Westpac-Melbourne Institute index of consumer sentiment fell 4.3 per cent to 88.8 points, seasonally adjusted, from 92.7 points in April.

The index remains below 100 points, signalling pessimists continue to outweigh optimists, for the 16th month in a row.

"The consumer confidence survey gave it a bit of a whack," Mr Johnson said.

"I watched it go down at 10.30.

"There's been mild pressure on the equity market which has been spilling over on to currencies, but I just think (the Australian dollar) needs to struggle a bit before it hits 78 US cents."

During the local session, better than expected Japanese economic data leant minor support to the dollar, Mr Johnson said.

The world's second largest economy contracted by 4 per cent in the three months to March compared with the previous quarter, for an annualised drop of 15.2 per cent, the Japanese Cabinet Office said today.

The market was anticipating a drop of 4.3 per cent.

Some experts say Asia's biggest economy is probably through the worst of the slump, with exports showing signs of having bottomed out in March.

"We were joking when it came out, that yes it had fallen off the cliff but it did not disintegrate when it hit the bottom," Mr Johnson said.

"The (Australian) currency benefited ever so slightly from those numbers because they were better than expected."

During tonight's offshore session, the minutes of the US Federal Open Market Committee (FOMC) April board meeting are expected at 4am tomorrow (AEST).

Mr Johnson said there was a risk that markets could react negatively to the Fed minutes if they revised economic forecasts.

"But I'm sure they'll word them in a way that will restore confidence," he said.