Aussie dollar scales 17-yr peak ahead of G7 meet
Friday April 13, 2007, 4:30 pm
By Anirban Nag
SYDNEY, April 13 (Reuters) - The Australian dollar rose to a fresh 17-year peak on Friday against a broadly weak U.S. dollar as investors increasingly bet Australia's central bank will raise interest rates next month to check inflation.
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It also set a fresh 10-year high against the Japanese yen AUDJPY=RR, rising to 98.98 yen, ahead of a G7 meeting of finance ministers and central bankers at the weekend.
Global imbalances and currencies are sure to be topics for discussion at the meeting, but it's unlikely that yen weakness will be singled out, giving the green light for carry trades to continue, traders said.
The Aussie has been a major beneficiary of carry trades, where investors borrow in the yen, where interest rates are low, to buy higher-yielding currencies like the Australian and New Zealand dollar.
At 4:00 p.m. (0600 GMT) the Aussie dollar AUD= was quoted at $0.8323/8327, up 0.9 percent from $0.8245/48 here late on Thursday, according to Reuters data. It hit a high of $0.8331 earlier in the day, its strongest since Oct. 1990.
"There is a substantial amount of good news priced into the Aussie at current levels and some consolidation is overdue, but this has proven to be a powerful rally so far," said Cherelle Murphy, economist markets, at ANZ.
"There appears to be little scope for a major reversal ahead of the upcoming CPI (consumer price) data and Reserve Bank of Australia meeting without a correction in the fortunes of the U.S. dollar."
The U.S. dollar was mired at a two-year low against the euro EUR= on speculation euro zone rates will rise further in the coming months. It also lost against other major currencies.
The Aussie has risen 7.7 percent since it struck a 16-week low of $0.7679 hit on March 6 on renewed appetite for carry, with speculation the RBA may lift rates in the coming months luring investors searching for better yields.
Also foreign takeover activity in local companies, higher metal prices and the general strength of the domestic economy have lent support to the Aussie currency, analysts say.
Data released on Thursday showed Australia's jobless rate dropped to a 31-year low of 4.5 percent in March, adding to speculation of a rate rise in the coming months.
The 30-day interbank futures market 0#YIB: is pricing a 64 percent chance the RBA will raise the cash rate to a decade high of 6.5 percent at its May meeting, up from about 50 percent a week back.
Some analysts say the first-quarter consumer price data on April 24 could be the clincher. Median forecasts are for consumer prices and underlying inflation to both rise a moderate 0.6 percent.
"While a May rate hike is certainly a possibility, the March quarter consumer price index (CPI) remains the significant hoop to jump through," said analysts at Macquarie Bank said in a note.
"With the U.S. dollar under pressure, cheap global liquidity still abundant, and rate hike speculation still in play, the Aussie remains in a sweet spot," the bank added.