The Australian dollar has recovered some ground after falling to a fresh three-month low amid increasing expectations of an interest rate cut in early 2014 and profit-taking.

At 0700 AEDT on Wednesday, the local unit was trading at 91.33 US cents, down from 91.86 cents on Tuesday.

During the local session on Tuesday, the currency peaked at 92.05 US cents after Reserve Bank of Australia deputy governor Philip Lowe gave a speech without adding to the bank’s recent commentary on the unusually high Australian dollar.

However, once European markets opened the currency failed to hold on to its gains as the market went into profit-taking mode sending the Australian dollar as low as 90.89 US cents, its weakest level since September 4.

Westpac NZ senior market strategist Imre Speizer said speculation the central bank will cut the cash rate in the new year is making it hard for the Australian dollar to keep rallying.

“It bounced back a little bit but it is still under downward pressure,” he said from Auckland.

“The main reason why they pick on the Aussie dollar is because the markets had earlier dismissed the idea of a Reserve Bank of Australia interest rate cut next year, but now they are starting to warm to the idea.

“The futures market is starting to price in the chance of an RBA cut in the first quarter of next year and that is one reason why the Aussie is underperforming most other currencies over the last week or so.”

Local economic data out on Wednesday includes construction work done for the September quarter from the Australian Bureau of Statistics.

That is followed on Thursday by official business investment figures for the September quarter which will also include expectation of future capital expenditure.

Speizer expects the Australian dollar to trade in a range between 90.90 and 91.80 US cents on Wednesday.

AAP