The Australian dollar rose to seven-month highs against the US dollar and yen on Monday as a seemingly brighter outlook for the world economy raised bids for riskier assets. The Aussie jumped to as high as $0.7388, a level last seen on October 6, and rose to a high of 73.54 yen, the highest since October 14.
Although the Aussie ran into profit-taking above $0.7380, analysts said the breaching of its previous high of $0.7384, struck on April 30, raised bull flags. The gathering momentum may push the Aussie above $0.74 in the near term, they said. "Equity markets holding up their gains have certainly put risk currencies back on the radar," said Amy Auster, a strategist at ANZ.
On the charts, the Aussie is heading for a key retracement level at $0.7475, which would mark a 38.2-percent recovery from its plunge between July and October last year. Against the Japanese currency, its next key retracement level is around 73.93 yen. Analysts said the Aussie's strength was helped by buying from technically-driven funds and hedge funds, which have not been active in Aussie dollar trade for some months. The buying was offset by selling from Australian importers.
The Aussie's rise came even as Australian economic data remained poor, including much weaker-than-expected inflation and housing numbers. Investors seemed to be coming around to the idea of a recovery in the world economy that would be good news for Australian commodity exports, and in turn the Aussie.
Many investors are betting the Reserve Bank of Australia will keep interest rates steady at 3 percent when it holds its next policy meeting on Tuesday. Australian overnight interest rate swaps show investors expect rates to be unchanged at 3 percent. Some analysts warned however that the recent poor data means the chance of a further rate cut from the RBA on Tuesday is not as remote as some think.
"The RBA has ample economic evidence to surprise the market with a rate cut," said Annette Beacher, an analyst at TD Securities. "The market continues to underprice the odds of RBA action in the coming months," Beacher said. The upbeat mood in markets dragged on Aussie bonds. Three-year bond futures eased 0.06 points to 96.45, while the 10-year contract lost 0.015 points to 95.305.