The Australian dollar stayed strong near 7-month highs on Monday as hopes the worst of the global economic downturn has passed boosted appetite for riskier assets like stocks and high-yielding currencies. Japan's Nikkei share average rose to its highest in six months, following Wall Street where shares surged on Friday after better-than-expected US jobs data seemed to support a view the economy may have turned a corner.
In a sign that risk appetite was growing, the Chicago Board Options Exchange Volatility Index fell over 4 percent on Friday. Also, the Australian dollar's three-month implied volatility was down at 18.1 from last year's peak of 36.9, reflecting expectations of stability in coming months.
"The Aussie has surged in recent weeks, reaching our year-end target of $0.7700, on the back of better-than-expected local and overseas economic data," said Joseph Capurso, foreign exchange strategist at Commonwealth Bank. "If overseas trends continue - rising commodity and equity prices - the risks are tilted towards a higher Aussie this week."
The Aussie was at $0.7681, off a fresh seven-month high of $0.7714 struck earlier in the session, but higher than $0.7558 late here on Friday. It gained more than 5 percent last week, although some technical analysts say it's well into over-sold territory, based on the 14-day RSI (relative strength index), making it ripe for a correction.
The Aussie rose to 75.48 yen, from 74.96 yen late here on Friday, as demand for carry trades made a comeback, though it was off a 7-month high of 76.11 yen struck earlier the day. Still, the local dollar under-performed the kiwi. The Aussie fell to a two-week low of NZ$1.2557, from NZ$1.2696 late here on Friday.
One of the reasons could be market speculation that the Reserve Bank of New Zealand could raise rates in the coming year contrast, the Reserve Bank of Australia is expected to keep rates stable. "As global investor risk appetite lifts, as the world economy stabilises, the Aussie/kiwi should start to ease because New Zealand is seen as a higher risk/higher return investment than Australia," said Commonwealth Bank's Capurso.
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