Aussie eases from 17-year peak as yen recovers
Thursday April 19, 2007, 4:31 pm
By Anirban Nag
SYDNEY, April 19 (Reuters) - The Australian dollar retreated from a fresh 17-year peak against the U.S. dollar on Thursday as a recovery in the Japanese yen saw investors unwind risky carry trade positions.
The yen rose against most major currencies, boosted by solid Japanese service industry data and partly by speculation that China's first-quarter gross domestic product data could beat expectations, forcing more tightening by the authorities there.
"The stronger yen is on the back of concerns that strong data from China could see monetary tightening there," said Richard Grace, senior currency strategist at Commonwealth Bank.
Investors seeking exposure to the non-convertible Chinese yuan often take positions in other liquid Asian currencies like the Japanese yen, or the Singapore dollar, pushing them higher.
In a Reuters poll, economists expected China's GDP to have grown 11 percent in the first quarter, year-on-year, picking up from a 10.6 percent expansion in the fourth quarter.
Grace said the stronger yen saw carry trades being unwound with sentiment also shaken by wobbly equity markets.
The Aussie has rallied over 7 percent since early March, after a bout of risk aversion saw it fall to a 16-week low. It has been boosted mainly by speculation of a domestic interest rate rise and rising demand for carry trades.
Carry trades involve borrowing in low-yield currencies like the yen to invest in high yielders like the Aussie and kiwi.
At 4:05 p.m. (0605 GMT) the Aussie dollar AUD= was quoted at $0.8321/23, down 0.5 percent from $0.8364/69 here late on Wednesday, according to Reuters data. It hit a 17-year high of $0.8392 in early trade.
The Aussie fell around 1.2 percent against the yen AUDJPY=, retreating further from a decade high of 100.04 yen hit earlier this week as Japanese investors booked profits.
"I think the fall in the Aussie is temporary and it should rebound," said Grace.
The Aussie has been lifted in recent weeks by growing foreign interest in acquiring Australian companies, firm commodity prices and the general strength of the economy.
The 30-day interbank futures market 0#YIB: is pricing a 52 percent chance the Reserve Bank of Australia (RBA) will raise the cash rate to a decade high of 6.5 percent at its May meeting.
"Uncertainty over the U.S. economic outlook and a higher Australian dollar have been cited as reasons for the RBA not to tighten in the short term," said Sally Auld, interest rate strategist at ANZ.
"But with demand indicators clearly picking up momentum in 2007, the only obstacle to a rate hike in May appears to be a low consumer price index next week."
Australia's inflation report for the first quarter is due on Tuesday and median forecasts are for a moderate 0.6 percent rise.