The Australian dollar powered to an eight-month high against a weak US currency on Friday as fears that ballooning debt may cost the United States its top-notch credit rating saw investors dump the greenback.
At the local close, the dollar was trading at $US0.7811, up from Thursday's close of $US0.7753.
Overnight in New York trade, the dollar inched up to $US0.7825, hitting an eight-month high.
Most higher-yielding currencies like the New Zealand dollar and the euro were trading near recent multi-month peaks as investors flocked to them amid concerns of a US credit downgrade.
Those concerns were stirred after Standard and Poor's warned Britain risks losing its AAA rating and brought to focus countries that are issuing a mountain of debt and building up huge budget deficits.
"Its mainly been a weak US dollar story,'' said Katie Dean, senior economist at ANZ.
"Investors are concerned about the high debt level in the United States,'' she said, noting also that if the Federal Reserve has to step up quantitative easing, it could lead to a depreciation of the US dollar.
For the week the Aussie rose more than 3 per cent, helped by gains in stock markets for most of the week, Australia's higher yield environment and growing signs of a recovery in China.
Charts are also showing some bull flags. The Aussie is hovering in the middle of an upward trend channel that started in mid-April. The next key resistance level around $US0.7930, representing a 50-percent retracement of its July-October plunge.
The Aussie fell against the New Zealand dollar. The Aussie fell to $NZ1.2665 from $NZ1.2755 late here on Thursday.
The Aussie also struggled against the yen as the week's regional stock market gains faded on Friday. The yen rose to a two-month high against the US dollar after Japanese Financial Minister Kaoru Yosano said the country is not considering intervening in currency markets.
By late Sydney trade, the Aussie was at 73.31 yen, down from 73.49 yen late on Thursday.
ANZ's Dean said the Aussie could ease ahead of domestic data next week, which is expected to be soft and remind investors that Australia is grappling with a recession.
First-quarter construction work done and private capital expenditure data are expected on Wednesday and Thursday and both are likely to show a slide in spending.
Aussie bond futures fell, tracking losses in US Treasuries. The longer end fell more sharply, in line with the global trend, amid investor concerns of more supply.
The three-year Aussie contract fell 0.05 points to 95.92, and the 10-year contract eased 0.100 points to 94.805.
Reuters
