Sydney: The Australian dollar rose to a more than 10-year high on 20 March, as high-yielding currencies came back into favour after the rebound in global stock markets.
The local currency reached $0.8035, its highest level since December 1996, underpinned by growing speculation Australia’s central bank would increase interest rates later this year.
The Aussie has risen above 80 cents in just three separate months over the past decade, and chart watchers have to go back to 1990 in August and October to find two more rare occasions.
“We wouldn’t expect these levels to be sustained,” said John Horner, currency strategist at Deutsche Bank. “We’re still cautious on the overall outlook for high-yielding currencies.
“There is probably further pressure on these currencies to come. We also think that a slowing in global growth over coming months will take some of the support away.”
But Suncorp treasury strategist Peter Pontikis said as long as technical support held at $0.7940, the focus for the Aussie was on moves to interim targets of $0.8080.
“I would not underestimate the danger that significant one sided buying flows force this Aussie higher and faster than ‘reasonable´ players would expect,” Pontikis said.
Helping the Aussie higher was buying on the cross against the Japanese currency as investors returned to riskier bets on borrowing the yen cheaply to lend in high-yielding currencies.
Global stock markets on 19 March shrugged off the decision by China on the weekend to raise its rates.
The Bank of Japan is expected to keep its rates at a very low 0.50% after a two-day meeting that ends on 20 March.
“Volatility is dropping with the positive stock market response to the Chinese rate hike over the weekend,” said Tony Morriss, senior currency strategist at ANZ Investment Bank.
“The carry should be underlined with a steady rate stance from the Bank of Japan when they conclude their meeting today.”
Australia’s central bank last raised rates to 6.25% in November, but its head of economics, Malcolm Edey, warned on Friday the outlook for domestic inflation was higher than ideal.