The Australian dollar rose past 83 US cents on Monday for the first time in nearly two weeks as relative calm returned to global financial markets, boosting the appetite for riskier assets.
Asian stock markets rebounded as investors ventured into high-yielding assets, including carry trades where they borrow in the low-yielding Japanese currency to invest in currencies with higher returns like the Aussie and the New Zealand dollar.
"Asian equity had a relatively good session and added to the calm in asset markets," said Robert Rennie, chief currency strategist at Westpac Banking Corp "The Aussie could easily rise to 83.50 or 84.00 US cents but it depends whether LIBOR and swap rates stabilise." Short-term funding costs have spiked as a global credit crunch saw borrowers scramble for funds while lenders turned risk averse and held back.
The Aussie dollar was quoted at $0.8325/8330, compared with $0.8205/08 here late on Friday, Reuters data showed. It remains well below last month's 18-year peak of $0.8871, reached before a recent bout of risk aversion. Against the Japanese yen, the Aussie was quoted at 96.79/89 yen, its highest in nearly two weeks and over 11 percent up on a 14-month low struck on August 17.
But analysts say carry trades were unlikely to make a comeback with the same force as before the turmoil in financial markets. Woes from the US subprime mortgage mess and its full impact on global markets were still playing out, forcing many investors to remain cautious. Weekly data from the Commodity Futures Trading Commission showed currency speculators swung to a modest long yen position in the week to August 21, the first time they have been long since June 2006.