The Australian dollar rose above 85 US cents on Monday after regional stock markets tentatively stabilised and the Reserve Bank of Australia raised its inflation forecast, suggesting interest rates here would increase again.
The local currency reached $0.8505, taking its gains to 1.3 percent since falling to a six-week low of $0.8400 on Friday after the taste for risk and high-yielding currencies soured on fears a global credit squeeze could slow world economic growth.
Stock markets in the Asia Pacific staged modest rallies on Monday after Wall Street stocks recovered from a slump on Friday, when the Federal Reserve injected further liquidity into the US banking system to ensure financial arteries flowed smoothly.
Analysts said the RBA's quarterly statement on monetary policy was more hawkish that expected. The central bank lifted its 2007 core inflation forecast to 3 percent - the top of its target band, and predicted a 3 percent pace to the June quarter of 2008.
But analysts noted the RBA's statement was finalised last Thursday, before central banks in Europe, the Asia Pacific and North America began shoring up their financial systems.
"Global events are far more of an influencing factor for the Aussie," said Tony Morriss, senior currency strategist at ANZ Investment Bank. "The fact stock markets are starting to move lower (off session highs) is the direction set for the Aussie." The Aussie had eased off its session high and was quoted at $0.8483/88, compared with $0.8409/14 here late on Friday, Reuters data showed. It remains about 4.4 percent below its July 25 18-year peak of $0.8871.
The Aussie was quoted at 100.28/38 yen, up from 99.14/24 yen here on Friday when it fell as low as 99.01 yen, an 11-week trough. The Aussie/yen remains about 6.9 percent below its July 20 16-year high of 107.72 yen.
Analysts said investors would await testimony by RBA Governor Glenn Stevens before a parliamentary committee on Friday for an update on the rates outlook after the moves by central banks. In the statement on Monday, Stevens said there was a risk that a credit squeeze could crimp the US economy and so drag on the world outlook, but he rated it as a low danger. "At this stage, the evidence continues to point to strong growth in the global economy overall," said Stevens.
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