The Australian dollar hit three-month highs on Monday as a soft US dollar, higher Asian equities and light short-covering activity all helped to lift demand for the high-yielding currency. The Australian dollar skipped past two resistance levels to as far as $0.9108, its highest since May 5. It was firm on the yen as well at 78.86, after climbing as high as 78.89. It had traded at 77.91 here late on Friday.
Australia's benchmark interest rate, as targeted by its central bank, stands at 4.5 percent. Although investors do not expect this rate to rise much further in the next one year, it is still well above US rates, which are near zero. The Reserve Bank of Australia (RBA) holds a policy meeting on Tuesday and the market sees no chance at all of a rate rise.
The spread between two-year Australian and US yields stood at a hefty 405 basis points, having hit a two-year high of 411 basis points last week. The New Zealand dollar, which also gained on the weaker greenback, stood at $0.7286, off a five-day high of $0.7301 hit earlier. That was a reprieve for the kiwi which fell to a low of $0.7190 last week after the Reserve Bank of New Zealand (RBNZ) downgraded its economic growth outlook and said future rate rises would be more limited.
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