The Australian dollar traded firm near three-week highs against a broadly weak US currency on Monday, supported by high commodity prices, although lingering risk aversion stopped it short of a 25-year high. The CRB commodities index soared to a record high of 464.40, lifted by surging oil and gold prices.
Higher commodities help the Aussie dollar as the country is a big exporter of natural resources. A surge in Australia's terms of trade, driven by the commodity price boom, has contributed to the central bank maintaining a tightening policy bias despite signs of a slowdown in consumer demand. The Reserve Bank of Australia's (RBA) board meets on Tuesday and is widely expected to keep interest rates unchanged at a 12-year high of 7.25 percent.
A private survey on Monday showed inflation pressures remain stubbornly high and futures markets are still pricing in a 60 percent risk of a rate hike in the next 12 months. The Aussie was at $0.9627/32 against the US dollar, up from $0.9591/96 late here on Friday and not far from a three-week high of $0.9633, struck offshore. It hit a 24-year peak of $0.9655 in May, but analysts said it could be headed for a volatile offshore session, ahead of the financial year end.
"It is the month-end, quarter-end and half-year ending and that can lead to big flows during the London session. For the Aussie, it's also year-end and there is speculation there will be net selling, which may hold the Aussie back from taking out the $0.9654 highs." Australia's financial year runs from July 1 to June 30.
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