THE Australian dollar has put on a strong performance over the past few days, as market sentiment turns more positive for risk asset, and is tipped to vault to fresh six-month highs.
The dollar traded as high as $US1.0686 early on Friday morning, its highest since October 31, before falling back to $US1.0603 around midday. It also reached a new 27-year high against the British pound of 68.08 pence.
The Aussie which fell as low as 94.5 US cents in early October on fears kicked off by Standard & Poor's US debt downgrade has quickly recovered ground since then. Against the US dollar, the Aussie has risen 3.5 per cent in January alone.
“At the moment everything is pointing to it going higher,” said City Index FX strategist Kara Ordway. Higher commodities prices, rising stock values, and improved investor sentiment have fuelled the rally in the Aussie, she said.
“We’re getting a bit more risk appetite coming into the market in general," she said, saying the dollar could rise as high as $US1.08, a high not seen since early August.
The Australian dollar got a boost after US Federal Reserve chairman Ben Bernanake said this week the Fed could embark on another round of greenback-weakening stimulus, known as quantitative easing.
The Fed’s announcement boosted investor confidence and led to a global rally on equities markets, commodities and risk currencies like the Australian dollar.
Rochford Capital currency director Derek Mumford sees the case for a stronger Aussie in the weeks ahead, as well.
“All in all things are relatively stable and in that environment the Aussie could get to $US1.075 in the next week," he said.
Mr Mumford said that even an interest rate cut by the Reserve Bank was already factored into investors’ thinking and was unlikely to knock the dollar lower.
FXCM senior currency strategist John Kicklighter said positive sentiment was likely to dominate markets for the next few weeks and could push the Australian dollar close to its record high of $US1.1085 set in July last year.
‘‘Speculation can probably keep this going for at least a couple of weeks, if not longer.’’
However, he warned the rally was being fed by ‘‘unnatural optimism’’ and, with Europe’s debt crisis far from over, markets would correct themselves at some point.
‘‘When the S&P 500, when the ASX200, when the FTSE 100 decide to correct and reverse it’s going to take down the Aussie dollar with it.’’
He predicted the Australian dollar was likely to slide as low as $US1.0450 over the coming days as investors locked in profits, but would climb higher again next week.
‘‘I don’t think it will necessarily correct too far at the moment because there is still a lot of optimism about the market.’’
City Index's Ms Ordway also said that despite the Aussie’s lurch higher, from a technical perspective, it looked “rather overbought at this stage.”
“We’re sitting on a fragile pedestal, it wouldn’t take much of a catalyst to bring it off that pedestal,” she said. But that would have be negative news from China, the US, or Europe.
Email a friend