The Australian dollar strengthened against the other major currencies in the Asian session on Thursday, as sentiment was bolstered by Reserve Bank of Australia Deputy governor Philip Lowe's comments in Sydney.

In a speech in Sydney, Lowe said that the interest rate cut is less effective in spurring the economy than in the past, but it led to weakened exchange rate and encouraged housing construction.

Talking about the effects of the monetary policy easing, he said that despite the transmission mechanism looking somewhat different, monetary policy in Australia is still working and it is helping to support the economy.

Lower interest rates attracted capital inflows and kept the Australian dollar elevated, he added.

"While movements in the value of our own currency remain heavily influenced by changes in commodity prices, the upward pressure on the Australian dollar from developments abroad has complicated the transition of the economy following the mining investment boom, " he said.

In other economic news, data from the Australian Bureau of Statistics showed that Australia posted a merchandise trade deficit of A$980 million in January. The headline figure was wider than the shortfall of A$925 million expected by economists.

Exports were up A$343 million or 1.0 percent on month to A$27.529 billion. Imports gained A$820 million or 3.0 percent to A$28.509 billion.

Also, data from the ABS showed that the total value of retail sales in Australia was up a seasonally adjusted 0.4 percent on month in January, standing at A$23.880 billion. That was in line with expectations following the 0.2 percent increase in December.

Traders await the European Central Bank meeting, which will be held in Cyprus later today. The ECB is expected to provide details on its quantitative easing measures.

Wednesday, the Australian dollar rose 0.20 percent against the U.S. dollar, 0.14 percent against the yen and 0.88 percent against the euro and 0.16 percent against the Canadian dollar.

In the Asian trading today, the Australian dollar rose to 1.4126 against the euro for the first time since January 28. At yesterday's close, the aussie was trading at 1.4168 against the euro. The aussie may test resistance near the 1.39 region.

The aussie advanced to a 2-day high of 1.0361 against the NZ dollar, from an early record low of 1.0282. The aussie is likely to find resistance around the 1.05 area.

Against the U.S. and the Canadian dollars, the aussie edged up to 0.7839 and 0.9739 from yesterday's closing quotes of 0.7816 and 0.9700, respectively. If the aussie extends its uptrend, it is likely to find resistance around 0.81 against the greenback and 0.99 against the loonie.

Against the yen, the aussie edged up to 93.88 from yesterday's closing value of 93.54. On the upside, 97.48 is seen as the next resistance level for the aussie.

Looking ahead, the German factory orders for January is due to be released at 2:00 am ET.

In the European session, Markit's Germany construction PMI, Eurozone retail PMI and U.K. Halifax house price index - all for February are set to be published.

The Bank of England will announce its interest rate decision at 7:00 am ET. Economists expect the bank to retain interest rates unchanged at 0.50 percent and asset purchase target at GBP 375 billion.

The European Central Bank will announce its interest rate decision at 7:45 am ET. Economists expect the bank to retain interest rates unchanged at 0.05 percent.

Following the announcement, central bank President Mario Draghi will hold the customary post-meeting press conference in Cyprus at 8:30 am ET.

In the New York session, U.S. weekly jobless claims for the week ended February 28, factory orders for January and Canada Ivey's PMI for February are slated for release.

At 10:00 am ET, U.S. Federal Reserve Bank of San Francisco President John Williams will deliver a speech about the economic outlook at the Chartered Financial Analysts Society Hawaii 10th Annual Economic Forecast Dinner, in Honolulu.

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