The Australian dollar recovered from a one-month low on Friday as rebounding stock markets saw a modest improvement in investor risk appetite, lifting higher-yielding currencies. The recovery was seen as temporary, with investors braced for US December industrial production data later on Friday which is forecast to show a 1 percent drop, underlining the gloomy prospects for the world economy this year.
"The Aussie is climbing back from losses and is tracking equity markets. But it's a technical rebound, the fundamentals have not changed," said Francisco Solar, a senior dealer at Easy Forex. The Aussie recovered to $0.6726, off a one-month low of $0.6535 struck on Thursday, and compared to $0.6574 seen here on Thursday late afternoon. The New Zealand dollar, also a higher-yielding currency, rose as well.
Despite the slight recovery on Friday, the Aussie has fallen 7.4 percent since hitting a three-month high of $0.7266 on January 6 and 7. With the financial crisis set to dent profits at companies around the world, forcing firms to cut jobs, the outlook for the Aussie remains poor.
The Australian currency's fortunes are closely tied to the health of the world economy because it is a commodity play, and a faltering global economy bodes ill for commodities demand. "We remain bearish on Australian dollar and New Zealand dollar given the likelihood of bad news headlines out of the US earnings season," said John Horner, a Deutsche analyst.