Dollar breaks into new territory against pound, yen
The Australian dollar may have retreated from historic highs against the greenback, but that has not stopped it from notching records against other world currencies.
The British pound has lost its dominance over the Australian dollar over the past four years, with the local unit setting a 28-year record against the pound on Friday, as the British economy struggles with poor growth and high levels of debt. It has also reached a 4½-year high against the Japanese yen.
However, the dollar has eased from its high of $US1.10 against the US dollar, set in July 2011, to trade at $US1.0268 on Friday as the US economy begins to show signs of recovery.
The records against the pound and the yen signal both the strengthening of the Australian dollar, which has benefited from a once-in-a-generation mining boom and the faltering of traditionally strong economies.
CBA strategist Joseph Capurso said the trend against the falling pound could remain as weakness in the British economy persists, letting the dollar set a new pace against the previously strong currency.
"You have to go back to the mid 1980s to get these sorts of levels," he said.
The dollar is now buying 68.39 British pence, a far cry from 2001 when it was buying only 33.45 pence.
Mr Capurso said the British central bank was likely to inject more money into the economy, which would see the currency deflate further.
But he said it was no surprise that it was weak against the booming Australian dollar. "Their economy is weaker than ours, so their monetary policy is looser."
ANZ currency strategist Andrew Salter said Australia's wide interest-rate differential against other countries, as well as its "safe haven" status, were pushing the currency into new territory against those now-weakened economies.
"Both the pound and yen are very weak currencies," he said.
"The yen is weak because of a change in political environment in Japan ... whereas the pound is weak because of some pretty poor growth outcomes in the UK."
Mr Salter said a weak yen also reflected a new Japanese government mandate to end the country's plight against deflation.
The yen has tumbled in the past months as Japan's new Prime Minister, Shinzo Abe, who took office in December, pushes for "bold monetary policy" to weaken the currency, stimulate the economy and defeat deflation.
Bank of Japan governor-designate Haruhiko Kuroda - nominated by Mr Abe - earlier this week said he would "do whatever it takes" to end deflation. Analyst say he is likely to loosen monetary policy further by pushing for more bond purchases when he replaces governor Masaaki Shirakawa later this month.
The dollar is now buying ¥97.41, the highest since before the financial crisis in 2008.
Mr Capurso said the yen had been weakening since the country recorded its first current account deficit in three decades last year.
"Previously Japan had a very large current account surplus. And that pushed the yen to very strong levels. Then around October last year, Japan recorded a current account deficit for the first time in about 30 years. And since that point Japan's yen has been weakening," he said.
Mr Salter said the dollar's status against the British pound was likely to last several years.
"The UK is one of the economies around the world that has real structural problems in terms of the amount of debt the government has on its books," he said.
But he said the record reflected huge growth in the Australian dollar.
"When you look over the long term, the Australian dollar is benefiting from a rise in the terms of trade that is the greatest in 160 years of Australian history."