The Australian dollar advanced past 86 US cents on Wednesday, pulling away from three-month lows on rising interest rate differentials over the United States and a recovery in regional stock markets.
But analysts said further gains would depend on whether major central banks can alleviate the credit crunch that has roiled financial markets in recent weeks and forced investors to dump higher yielding currencies and riskier assets.
"Trade was been pretty quiet and the Aussie has been supported by the yield story," said John Kyriakopoulos, currency strategist at National Australia Bank. The US Federal Reserve offered $20 billion on Monday in a term auction of 28-day funds.
The Aussie was at $0.8625/30, up 0.4 percent from $0.8591/95 late here on Tuesday and off a three-month low of $0.8554 offshore. The Aussie edged up to 97.71/81 yen from 97.27/37 yen as the recovery in stocks prompted investors to cautiously return to risky carry trades. In carry trades, investors borrow in the cheaper yen to buy higher yielding currencies like the Aussie or the Kiwi dollar.
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