The Australian dollar leapt to a 16-year high against a broadly weaker Japanese yen on Monday, underpinned by rising stock markets that reinforced a growing appetite for risky carry trades.
The soft US dollar, which retreated against the euro after tame inflation data and weak consumer sentiment reduced prospects of an interest rate increase from the Federal Reserve, also bolstered the Aussie.
"All the positives and the renewed appetite for risk just stacked up for the Aussie dollar," said Robert Rennie chief currency strategist at Westpac Banking Corp "I would be surprised if the Aussie does not rise to $0.8450 this week."
At 4:00 pm the Aussie was quoted at $0.8425/30, up from $0.8367/70 here late on Friday. It had fallen to a 10-day low of $0.8333 on Thursday after the central bank governor quashed hopes of an early domestic rate rise.
Against the yen, the Aussie rose to 104.12/104.22 yen, up from Friday's 102.90/103 yen. It struck a 16-year peak of 104.24 yen, its highest since October 1991, benefiting from increased demand for carry trades after the Bank of Japan last week indicated it was in no hurry to raise rates.
In carry trades investors borrow in the low-yielding Japanese yen to buy the higher yielding Aussie or the New Zealand dollar. The New Zealand kiwi weathered a bout of suspected intervention by its central bank, recovering from its losses as investors searched for higher yields.