THE dollar opened slightly lower today after positive US data led investors to the US and put pressure on the local unit.
At 7am (AEDT), the dollar was trading at US98.57c, slightly down from yesterday's close of US98.88c.
Since 7am yesterday, the local unit has traded between US98.27c and US99.15c.
The fall came after the dollar rallied above US99c on release of better than expected Chinese manufacturing data (PMI) early in the European session.
Commonwealth Bank vice president of institutional banking and markets Tim Kelleher said the local unit lost ground immediately after reaching US99c overnight.
"Initially, it was stronger into London on that Chinese PMI data but during the New York session we've seen the ISM manufacturing data stronger, so we've seen the US dollar rally back again and that has weakened the Aussie," Mr Kelleher said.
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"It has not moved a dramatic amount, but it's just knocked it off its highs.
"Most of the focus is going to be on the Melbourne Cup and then the RBA, in that order."
The state-affiliated China Federation of Logistics and Purchasing said its purchasing managers index, or PMI, rose to 54.7 in October, from 53.8 in September and 51.7 in August.
US manufacturing unexpectedly picked up steam in October, raising hopes for a strong final quarter that could underpin a flagging economic recovery, a key industry survey showed yesterday.
Investors are now waiting for the Reserve Bank of Australia's (RBA) interest rate decision today at 2.30pm (AEDT). The futures market has priced in a 20 per cent chance of a rate rise.
The low chances mean that if the RBA increases the cash rate the dollar could reach parity with the US dollar for the second time in less than a month.
There had been strong speculation in recent weeks the RBA would lift the cash rate to 4.75 per cent, from 4.5 per cent.
But that speculation waned after the publication of official figures last week showed the rate of inflation had not picked up dramatically in the September quarter.
It would be the first rate rise since May.
Mr Kelleher said that if the RBA left the cash rate on hold there was a risk of profit-taking in the lead up to the US Federal Open Market Committee (FOMC) meeting later in the week.
Investors are awaiting a likely announcement tomorrow of another round of quantitative easing (QE) in the US.
"There hasn't really been any bad US data coming out and the Fed is meant ot be making that decision based on data, so any QE may be less than people expect," Mr Kelleher said.
He predicted the local unit would "drift back off" in afternoon trade if the RBA left the cash rate on hold.
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