THE high Australian dollar could soon find some relief with signs emerging that Japanese investors are starting to cool their interest in currency widely regarded around the world as a safe haven.
Over the past few years, with the euro crisis sparking fears of a break-up of the euro zone, Japan's investors slashed their holdings of European assets and poured billions of dollars into Australia.
While the Australian dollar has traded persistently high against the US dollar, it has started to pull back from the euro, falling nearly 10 per cent since August.
Westpac's chief currency strategist, Robert Rennie, said as conditions in Europe stabilised, there were signs that this behaviour had started to change.
"We have long believed that investors were overplaying European break-up risks and that the policies announced by the European Central Bank in late 2011 through 2012 would be successful in reducing the perception of those risks and hence influence investor behaviour," Mr Rennie said in a note to clients.
"One of the obvious implications of this would likely be that 'safe haven' demand for Australian dollar debt from [Japanese investment funds] would fall."
After hitting a high of €85.88 cents in August last year, the dollar is now trading at €77.5 cents, a decrease of nearly 10 per cent. The dollar in late Monday trading was at US104.24¢.