FYI | Jul 10 2007
By Chris Shaw
The Australian dollar is now at US86c against the greenback, ANZ Bank senior currency strategist Tony Morriss noting this level is at the top of a major upward channel that our currency has followed higher for more than a year.
Morriss suggests above US86c a number of significant technical levels come into play for the currency, so a period of consolidation is likely in coming weeks. Short-term the channel of the past year is in play, while very long-term analysis shows US86.4c represents a 38.2% correction of a multi-year decline that took the currency from US148.85c in 1971 to just under US48c in 2001.
The fundamentals at least appear supportive, Morriss pointing out the domestic economic data is far more supportive of further rate hikes in Australia and commodity prices appear likely to move higher, while at the same time increased inflows from Japanese investors looking for better returns should also boost the Aussie dollar relative to the US dollar.
He also suggests with monetary policy in both countries expected to be steady in coming months further gains for the Australian dollar will require a combination of further US dollar weakness, continued strength in commodity prices and ongoing inflows into the Aussie currency from those active in the carry trade.
Whether these factors all come at the same time and push the dollar higher is unknown, but the downside appears limited as Morriss estimates key support for the currency is now at around US84c.
If things do fall into place and the currency can break through US86.40c the next target becomes the 1989 high of US89.50c, while a move above that level targets the 1894 high of US96.50c.
