Update The Australian dollar powered to new 28-year highs today to be within spitting distance from a milestone parity level, helped by a strong domestic economy and renewed weakness in the US dollar.
At the local close, the dollar was trading at 99.72 US cents after breaking through stop-loss buy orders to surge as far as 99.94 US cents, with option barriers at $US1.00 providing resistance. Yesterday the dollar closed at 98.98 US cents.
Against other main currencies the dollar didn't perform as well today, slipping to 80.87 yen, from 80.96, and 70.75 euro cents, from 70.92.
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The renewed rise came as traders awaited a second round of quantitative easing by US Federal Reserve - buying bonds from banks - to inject funds into the financial system to help the beleaguered American economy, putting pressure on the US dollar.
Apart from greenback weakness, the Aussie dollar was buoyed by the Melbourne Institute's consumer inflation expectations data - which came in higher than predicted - and by rising sharemarkets.
If inflation rises, interest rates are likely to rise; higher rates increase foreign demand for the Australian dollar as investors seek out better returns.
"The Australian dollar has been the outperformer in 2010 largely due to its very strong local fundamentals, as well as its strong trade links to emerging Asia," Barclays said.
The Australian dollar has shot up 66 per cent since hitting a low of 60.07 US cents in October 2008 during the peak of the global financial crisis.
A solid domestic economy buoyed by strong Chinese and Indian demand for commodities, relatively high interest rates that could climb further, a weak US dollar and rising commodity prices have all helped the Aussie to be the strongest of major currencies since the crisis.
But Barclays argued the currency was still over-bought at present levels, even after accounting for expectations a record trade boom on surging commodity exports could buoy Australia's economy for years.
"Indeed, the Australian dollar's fundamental value has shifted higher, it has not shifted to parity," Barclays said.
Some investors seemed to agree. Traders said there were stop-loss sell orders lined up above $US1.00 as some thought it would be a good time to sell and take profits once it hits parity.
But at the same time, traders noted there were also some stop-loss buy orders above $US1.00, placed by investors who thought the breach of the milestone level meant the buying momentum was still strong.
Charts do suggest more gains could be had. The next target level was $US1.0236, the 161.8 per cent Fibonacci projection level of the currency's fall between November 2009 and May 2010.
Australian bond futures were soft, with 10-year futures down 0.025 points at 94.95.
Traders said the broader trend still pointed to further US dollar weakness, with markets heavily shorting the US currency.
"The momentum is still there ... but when everyone is singing the same song, you can get an event that can lead to a sharp correction," HSBC Senior Manager Treasury Daniel Brdanovic
said.
The Aussie also gained on the kiwi, holding at about $NZ1.307, but still below the six-month high of $NZ1.3176 struck in late September.
Reuters