The Australian dollar hit fresh highs against the US currency yesterday, as uncertainty about the global economy gripped the markets ahead of tomorrow's parliamentary elections. The Aussie dollar reached a high of US$0.9017, rebounding from a three-week low. The currency has seen a sustained rally since sinking to US$0.8819 in May.
The rally on the money markets comes as the Labor Party, led by the prime minister Julia Gillard, draws level in the polls with the opposition Liberal Party, led by Tony Abbott. The opposition has vowed to abolish the government's planned tax on the profits of mining companies, which generate a significant part of the country's industrial output. Analysts responded to the election drama with a shrug, however, saying the slowdown in Europe and the US was the driving force behind movements in the Aussie dollar.
The Aussie dollar, which is regarded as a commodity currency, tends to move opposite to thegreenback and has followed precious minerals and metals upwards. "We'll see strong demand [for the Australian dollar] in Asia because of the trade links with Australia, and also because Australia exports a number of raw materials," said Henrik Gullberg, a currency strategist at Deutsche Bank in London. "That's good for activity in the domestic economy which could have impact on the interest rates situation.
"The underlying trend in the Australian economy is favourable." However, Neil Mellor, a senior currency strategist at Bank of New York Mellon, said: "Australia has done well to avoid going into recession, but the risks going forward are substantial, both externally and domestically." gregor.hunter@thenational.ae