The Australian dollar briefly rose above 78 cents on Friday, buoyed by gains on the cross rate against the Japanese yen, as investors' appetite tentatively returned for high-yielding currencies amid stable stock markets.
But the local currency quickly pared gains as some investors sold into the small rally to take profits on concern the recent gyrations in global stock markets might resurface.
"If you go back through history and look at previous episodes of volatility and market jitters, you would be hard pressed to find an episode that only lasted a week and a half," said Jonathan Cavenagh, currency strategist at Westpac.
"It is too early to be calling the rout, or the bout of risk aversion, in markets over just yet. Obviously, I think equities markets globally have found a base over past sessions."
Investors also remain cautious ahead of the important monthly US jobs report later on Friday, which will provide clues on the strength of the world's biggest economy. A Reuters poll pegged forecasts at 100,000 nonfarm jobs created in February. The Aussie dollar was quoted at $0.7788/93 compared with $0.7772/74 here late on Friday, according to Reuters data. It ranged from $0.7772 to $0.7804.
It has risen as much as 1.6 percent since falling to a 16-week low of $0.7682 on Tuesday, although it was about 0.4 percent below last Friday's offshore close of $0.7820. The Aussie/yen cross was quoted at 91.33/43 yen, down from its session high of 91.60 yen, although it was up from 90.48/58 yen on Thursday. The cross has risen as much as 3.6 percent since hitting a five-month low of 88.46 yen on Tuesday.
Investors were rattled last week after the sharp sell-off in global stock markets, and risk aversion had led to the unwinding of yen carry trades, which involve borrowing cheaply in the low-yielding yen to invest in high-yielding currencies. Firmer base metal prices have helped support the Aussie this week, given Australia is a big miner and exporter of minerals.
The currency also regained some lost ground after data on Wednesday showed the domestic economy grew almost twice as fast as market expectations in the fourth quarter. Next week investors will get more clues on the strength of the economy so far this year, with data on housing finance for January and employment for February, and several private sector surveys on business conditions, jobs and consumer sentiment.
"Our view is that the housing finance and labour force readings should both be quite strong, which could mean upward pressure on local bond yields, the local equity market and the Australian dollar," said Stephen Roberts, the director of research at Grange Securities, a unit of Lehman Brothers. A Reuters poll showed forecasts centred on 20,000 new jobs in February, compared with a fall of 3,600 in January.
"Our economists expect quite a solid rebound and there is an expectation that the unemployment rate will hover near 30-year lows as it has done in recent months," said Westpac's Cavenagh. With strong January retails sales and a narrower trade deficit reported earlier this month, the economy was already on a fairly reasonable footing in the first quarter, Cavenagh said.