Wednesday, Jul 18, 2012
By Nicole Hong
The Australian dollar hit an 11-week high against the U.S. dollar and a euro-era record against the common currency, as investors hopeful that a serious global slowdown could be avoided sought out higher-yielding assets.
The Australian dollar jumped to $1.0376 earlier, its highest since May 1, before ending the New York trading day at $1.0363 from $1.0315 late Tuesday. The Australian currency is up over 2% in the last four trading days.
Better-than-expected corporate earnings, rising commodities prices and a lack of negative developments out of Europe have all boosted investor optimism this week, analysts said.
"The Aussie has come to represent the currency of optimism," said Greg Anderson, currency strategist at Citigroup in New York. "When sentiment improves, everybody runs out to go long the Aussie."
Wednesday's gains were also driven by the release of minutes Tuesday from the Reserve Bank of Australia's meeting earlier this month, where policy makers said they "saw no need" for more interest rate cuts and that Australia's economy had more momentum than expected.
The Australian dollar is attractive to investors because Australia is one of the few remaining AAA-rated sovereigns. The RBA has also set its benchmark interest rate at 3.5%, while most other major economies, including the U.S., euro zone and Japan, are below 1%.
To be sure, slowing Chinese growth could limit a sustained Australian dollar rally since resource-rich Australia is heavily dependent on Chinese demand for natural resources. However, some investors may be buying the Australian dollar despite weak Chinese data because they perceive the Chinese central bank as "ahead of the curve in terms of stimulus," said Brad Bechtel, managing director at Faros Trading in Stamford, Conn. He predicts it could rise as high as $1.05 in the coming weeks.
The euro also suffered against the Australian dollar, falling to a record low of A$1.1834 earlier. It recently traded at A$1.1853, compared with A$1.1920 late Tuesday.
The common currency was weaker across the board Wednesday after German Chancellor Angela Merkel expressed doubts about the future of the "European project." The euro was lower against the dollar at $1.2284 from $1.2294 late Tuesday.
Also Wednesday, Federal Reserve Chairman Ben Bernanke completed his two-part congressional testimony, where he offered a downbeat assessment of the U.S. economy but little guidance on further Fed easing. Currency markets ignored positive U.S. housing starts data, which showed home construction in June rose to its highest level in nearly four years.
Despite the positive investor sentiment, the yen still gained against the euro and the dollar. Normally, the yen would fall on market optimism because investors would sell off currencies perceived as safer. The dollar was recently at Y78.80 from Y79.06 late Tuesday, while the euro changed hands at Y96.79 from Y97.22.
The British pound was also under pressure Wednesday after the most recent Bank of England minutes opened the door for a potential rate cut. The pound recently bought $1.5654 from $1.5655 late Tuesday.
The WSJ Dollar Index, a new index that tracks the greenback against a basket of currencies, ended the day at 72.01 from 72.07 late Tuesday.
Write to Nicole Hong at nicole.hong@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
July 18, 2012 17:08 ET (21:08 GMT)
