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Dollar hits fresh 23-year high

Business Materials 8 October 2007 06:48 (UTC +04:00)

(The Australian News) - Overnight, it traded between a low of $US0.8900 and a high of 0.9006 - its highest point since June 12, 1984.

The Aussie opened stronger against all the major currencies, climbing to 105.19/24 Japanese yen compared to Friday's close of 103.53/59. Bank of New Zealand currency strategist Danica Hampton said the Aussie had been buoyed by a surge in risk appetite following the release of a report in the US on Friday that suggested the US economy was in better shape than previously thought.

The US Labor Department reported that employers boosted payrolls by 110,000 in September and said that the US economy actually added 89,000 jobs in August instead of the earlier-reported 4,000 job loss.

Despite the gain, the US unemployment rate rose to 4.7 per cent.

"The payroll report suggested the US economy has held up better than people expected, so investors have scaled back their expectations of an easing in monetary policy by the US Federal Reserve," Ms Hampton said.

"The stronger than expected payroll data report suggests a US recession is less likely.

"This has really buoyed investor sentiment and we've seen a rebound in risk appetite.

"So there's really strong demand for carry trade currencies. That's the main factor that boosted the Aussie through that 90 US cents level."

Carry trade is when investors sell low-yielding, or low interest rate currencies such as the US dollar, and buy high-yielding currencies such as the Australian and New Zealand dollar.

"I guess the Australian dollar has really outperformed in the sense that the Australian economic outlook is so bright: not only does (economic) growth look like it's improving but there's also a risk that the Reserve Bank might tighten rates again."

"That domestic outlook is underpinned by the fact global growth is hanging together relatively robustly, which will support commodity prices.

"It all looks like a positive picture for the Australian dollar."

But with the US and Japanese markets closed today for holidays, Ms Hampton said it was unlikely the Aussie would push through the US 90 cent barrier again today.

"I really think it will struggle to push above 90 US cents today given that the US and Japanese markets are closed and there is very little in the way of fresh drivers coming from the local market with no major data today," she said.

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