Dollar surges to nine-month high

The Australian dollar has risen to its highest level since November, with some traders predicting a charge toward US80c.

 

The Australian dollar climbed to its highest level since November on Friday, breaking through critical resistance with some traders now predicting a charge toward US80 cents.

Traders said US dollar’s weakness has lifted the currency all week, with a break of technical resistance at US77.50c the catalyst for a rush of late buying.

“There could be no stopping it this side of US80c in coming weeks amid ingrained US dollar bearishness,” said Ray Attrill, head of currency strategy at National Australia Bank.

The Australian dollar was at US77.59c at about 5.52pm (AEST), compared with US77.02c around the same time on Thursday.

A surging Australian dollar is likely to unnerve the Reserve Bank of Australia to some extent, after repeated warnings that an appreciating currency would muddy the economic picture.

Australian is near the end of a transition from mining-led growth to one more focused on exports and services. A weaker Australian dollar in recent years has helped smooth that change in the economy.

Tightening financial conditions through a rising currency would also see bets on an interest rate increase wind back.

Current pricing suggest the RBA will next raise interest rates in the second quarter of 2018.

The Australian dollar has now entered the zone where it has struggled to push higher in the past year, said Elias Haddad, currency strategist at the Commonwealth Bank of Australia.

The Australian dollar has not traded above US78c since April 2016, and even then it soon fell sharply, he added.

All eyes now fall the release of US inflation data in coming hours, which will likely have a massive influence on shaping bets around US Federal Reserve interest rate increases.

All the bullishness around the Aussie dollar comes despite news of a major US investment house turning bearish on the currency.

Morgan Stanley said it has re-entered a short position on the Australian dollar versus the greenback at US76.50c. It remains bearish on the Aussie amid a rising bond-yield environment, which it thinks will pressure the currency and Australian banks’ funding costs.

Morgan Stanley also said the Aussie has benefited of late from positive Chinese economic data and broader greenback weakness, but it sees both of those changing.

The investment bank added that with the Reserve Bank of Australia not expressing hints of hawkishness like others, it will eventually add pressure to the currency.

Dow Jones Newswires