The Australian dollar's latest surge against the greenback despite jitters in the global economy has experts pondering whether the currency may have entered an extended period of strength.
The dollar has a reputation as a risk currency - an asset bought in times of economic optimism and sold during times of fear.
But since November the dollar has traded at or near parity with the greenback, despite a steady stream of uncertainty in global and local markets. In the past three months, China has lifted interest rates while floods and cyclone Yasi hit Queensland. The Middle East continues to convulse with revolutions that are spiking oil prices and raising concerns about the recovery in the global economy.
“Historically, you would expect the Aussie to be taking it on the chin,” said RBC Capital Markets economist Michael Turner. “The Aussie seems to have lost that risk proxy function to a degree.”
One of the major factors lifting the dollar is China's enduring strength through the time of the financial crisis, which has underpinned Australia's low unemployment and relatively high interest rates of 4.75 per cent.
Also, the US dollar continues to decline against most major currencies, falling 9.85 per cent over the past year. The Australian dollar has risen 5.74 per cent over the same period, according to Bloomberg data.
“We've thrown Libya, we've thrown Egypt, the earthquake in New Zealand,” said Westpac chief currency strategist Robert Rennie. “There are a lot of big one-off events, there's a lot of global contagion and the Aussie is doing very very well.”
Mr Rennie expects the dollar to trade between 96 to 103 US cents for the rest of the year.
CMC chief market strategist Michael McCarthy said despite the Aussie's newfound resilience, a pullback in commodities prices would likely pull the dollar lower.
If we were to see “swingeing measures from authorities” in China or India to head off potential inflation outbreaks in those economies, “that would have immediate effects on commodity markets and weigh on the Australian dollar.”
