A small hop for the Australian dollar

The Australian dollar has gained 1.26 cents, or 0.5%, since Monday, July 8. At 0812 AEST the Australian dollar was at US cents 91.81, down a touch from US cents 91.88 yesterday, according to Bloomberg data.

Recent gains are attributed by some such as Ray Attrill, the co-head of foreign exchange at National Australia Bank, as traders covering their huge short positions in the currency. The Federal Reserve’s commitment to buy $US85 billion of mortgage-backed and longer-term Treasury securities has also boosted the Australian dollar. The Fed’s huge monthly injections of US dollar funds into the market are seen as depressing the greenback’s value.

But Australian banks trading their currency say the chances of further gains in the Australian dollar are limited (see John Abernethy's Dollar doldrums put a shine on Platinum).

Joseph Capurso, the currency strategist at Commonwealth Bank of Australia, expects the Australia dollar to “fall back quickly” to 91 US cents. Capurso says the market has “overreacted” to the Fed’s commitment to continue its monetary stimulus. By Monday, July 15, the Australian dollar will be trading lower.

Commonwealth Bank forecasts the Australian dollar will end the year at 92 US cents, down from a previous forecast of 95 US cents. 

National Australia Bank’s Attrill says there is a slim chance of the Australian dollar rising through 93.5 US cents. If that were to happen the currency would rise even further. But NAB is not changing its forecast for the Australian dollar to fall further in the next few months. The bank forecasts the Australian currency at 90 US cents by September 30.