The Australian dollar hit parity for the third time in three months early today, but soon retreated as investors took profit and as a surge in US Treasury yields helped underpin the greenback.
The dollar traded as high as 100.24 US cents early this morning, after stocks in the US rose and investor appetite for risk assets – like the local currency – increased.
But at the local close of trade, the dollar was back down to 99.47 US cents, slightly lower than Tuesday’s close of 99.50 cents because of a stronger US dollar in the local day session.
Benchmark US Treasury yields vaulted to a seven-month high of 3.50 per cent today, a massive increase from 3.28 per cent late in Asia Tuesday, helping lift the greenback against a basket of major currencies.
The US dollar gained further as investors shunned the euro after Moody's warned it might downgrade Spain's credit rating.
Still, the upbeat US retail sales data, recent solid growth data from China, and the fact that Beijing has so far refrained from lifting interest rates, bode well for commodity currencies like the Australian dollar.
All eyes are now set on Ireland, which is seeking parliamentary approval for its bailout this week and key U.S. inflation, manufacturing and housing data.
"We may see a little bit of a relief rally on the actual materialisation (of the bailout) that could very well keep the likes of the Aussie underpinned in the coming 24 hours or so," said Sue Trinh, strategist at RBC.
Rochford Capital senior foreign exchange consultant Tom Averill said the dollar lost some ground in the morning session on overnight profit-taking.
He said this morning’s statement from the US Federal Reserve monetary policy meeting was as expected and attributed the local currency’s strength to gains on offshore equity markets.
‘‘We have seen both the Dow Jones and the S&P break through their resistance levels and recent highs in the trading over the last few days, which confirms a robust equity market environment,’’ Mr Averill said. ‘‘That associated risk appetite will continue to provide support for the Aussie.’’
When investors are confident about future growth, they put money in stocks, commodities and currencies exposed to resources exports, like the Australian dollar, all known as risk assets.
“On the whole, I think risk appetite is fairly buoyant and you’re seeing the Aussie and equities get quite a lot of support on that,” Rochford Capital managing director Thomas Averill said.
The dollar briefly touched parity with the greenback in October, and then again on November 12.
Also, overnight the US Federal Reserve kept interest rates steady at near zero, where they have been since the beginning of the financial crisis. That compares to Australia, where the Reserve Bank lifted rates to 4.75 per cent in November.
Currency values are highly linked to the interest rates associated with them.
AAP, Reuters