Dollar claws back to a steady close

THE dollar regained lost ground to close steady after a sell-off sparked by Chinese data showing a sharp drop in manufacturing activity. At 5pm (AEST), the dollar was trading at 107.38 US cents, up fractionally from 107.37 US cents yesterday. The dollar clawed its way from its intraday lows, buoyed by news that France and Germany may have reached an agreement over how to resolve the Greek debt crisis. Deutsche Bank foreign exchange strategist John Horner said the Franco-German common position led to the Aussie dollar's recovery. "We did take a bit of a hit after Chinese PMI (purchasing managers index) data was quite a bit softer (than expected)," Mr Horner said. Manufacturing activity in China contracted for the first time in a year in July to a 28-month low, HSBC Bank said. Start of sidebar. Skip to end of sidebar. End of sidebar. Return to start of sidebar. It was the latest sign that monetary tightening measures to rein in inflation were slowing the Chinese economy. "Asian markets continued to trade higher in the afternoon and that has dragged the Aussie back with it," Mr Horner said. It was reported today that German Chancellor Angela Merkel had reached a last-minute compromise with France over a fresh bailout for Greece, ahead of the crucial summit of euro zone ministers in Brussels later in the day. Mr Horner said the dollar could go either way overnight as traders would be waiting to see what form of private sector involvement or new tax was announced at the summit. The dollar could trade as high as 108.00 US cents on the back of a favourable announcement or as low as 105.00 US cents, Mr Horner said. At 5pm (AEST), the dollar was at 84.66 Japanese yen, down from yesterday's close of 84.77 yen, and at 75.24 euro cents, down from 75.68 euro cents. The Australian bond market was unchanged today. At 4.30pm (AEST) today, the September 10-year bond futures contract was trading at 95.035 (implying a yield of 4.965 per cent), unchanged from Wednesday's close. The September three-year bond futures contract was at 95.590 (4.410 per cent), steady also from Wednesday's close. Mizuho treasurer Joe Ivanovski said China's PMI data helped raise Australian bond prices. But the overall mood on the local bond market was subdued as traders awaited the outcome of the EU emergency summit overnight. "I'm not sure what to be expecting to be honest," Mr Ivanovski said. "I don't think that there will be a miracle solution to this, but at least (we may) see some sort of path or direction that makes it solvable." The RBA's trade weighted index was at 77.3, unchanged from yesterday.