The Australian dollar stumbled on Friday to pull back from decade highs against the euro, hobbled by speculation US interest rates may rise sooner than expected. The Aussie took an early spill after the Federal Reserve shocked markets by lifting an emergency lending rate by 25 basis points to 0.75 percent. The rise, although flagged by the Fed last week, came much earlier than investors had expected.
Sparking talk the target federal funds rate may also rise sooner than forecast. That boosted the US dollar and in turn pushed the Aussie down to $0.8913, off the day's high of $0.9026. Near-term support is seen around the 10- and 20-day moving averages of $0.8870.
If the resurgence in the US dollar should hold, the Aussie's trek towards parity against the US currency would look ever more arduous. Earlier this month, the Aussie breached the 23.6 percent Fibonacci retracement level of its February-November 2009 rally. The key 38.2 percent level is marked at $0.8200.
But some analysts say it is not all bad news for the local dollar. They say even a small step toward normalisation of US monetary policy would signal the Fed's confidence in a US economic recovery. That would in turn bode well for the world economy and commodity prices.
The Aussie is sensitive to swings in commodity prices because Australia is one of the world's top seller of commodities. Still, the Aussie's overall weakness on Friday gave the bruised euro a reprieve. The Euro edged up to A$1.5127, from a decade low of A$1.5056 hit on Friday. But with the Greek debt crisis unsolved, many bet the euro would resume its slide soon enough.