Rampant $a Tipped To Keep Climbing Beyond Us80?

The Age

Wednesday March 21, 2007

Vanessa Burrows, Markets Report

THE dollar will extend its foray into decade-high territory, reaching as high as US82.5? by early next month, according to currency strategists.

The dollar, which has pushed above the US80? mark only twice in the past decade, climbed to US80.33? yesterday as investors bet the Reserve Bank would raise interest rates again in coming months.

HiFX trading director Mike Hollows said investors were once again being lured to the relatively high-yielding currency, putting several weeks of turbulence in global markets behind them.

If the dollar held its gains above US80?, there was a fair chance it could trade as high as US82? or even US82.5?, he said.

Macquarie Bank currency strategist Joanne Masters said it was impossible to ignore the dollar's gathering momentum and forecast it would reach as high as US80.50? or US81.20? in the coming weeks before losing ground.

"History is against the Aussie rallying from here," she said. "If you look at a 10-year chart, apart from the past 24 hours, the Aussie has only been above US80? twice."

Less than three weeks ago, it was trading at US77.2? and strategists were pointing towards lows of US74? by year end.

But when Reserve Bank assistant governor Malcolm Edey last week warned about inflationary risks, his comments were interpreted as a signal the RBA might lift rates further.

According to the Sydney Futures Exchange target rate tracker, the market expectation of an interest rate rise next month is 40 per cent. That risk is elevated to 72 per cent in May, and 89 per cent in June.

An interest rate increase, from 6.25 per cent to 6.5 per cent, would fatten yields on Australian debt, attracting more inflows.

ABN Amro FX strategy director Greg Gibbs said investors were now more comfortable with a strong dollar and predicted it could trade "a little higher yet".

"I think we will start to develop a range somewhere between 75 and 85 over the next three or four years," he said.

But any long-term rise would be bad news for exporters and manufacturers, said Australian Industry Group chief executive Heather Ridout.

"There has been a recent moderate pick-up in manufactured exports and if the currency stays at these levels, this will be killed stone dead," she said.

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© 2007 The Age

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