The greenback slid against major currencies overnight to push the Australian dollar to its highest level in more than three months.
The Australian dollar reached US66.14 on Tuesday morning, its highest since August 10.
While markets expect the US Federal Reserve and other European central banks will start cutting rates in 2024, traders anticipate Australia’s Reserve Bank will tighten monetary policy further in February, making Australian assets more attractive and pushing the local currency higher.
Since the start of November, the Australian dollar has added 4.3 per cent which, if sustained until the end of November, will be the dollar’s strongest month of the year.
AMP chief economist Shane Oliver said the Australian dollar would likely move even higher if the RBA continues to hike rates and the Fed moves to cut, as expected.
“We expect the combination of a slightly more hawkish RBA, a falling $US at a time when the [currency] higher into next year, likely taking it back above $US0.70,” Mr Oliver said in a note to clients.
Traders are closely watching impending inflation data from the US, Europe and in Australia this week to determine where central banks might start moving next.
Locally, the Australian Bureau of Statistics is set to report fresh monthly inflation figures on Wednesday, however the data is likely to underestimate price pressures across the economy as still high services costs will not be measured.
Economists are forecasting inflation to cool to 5.2 per cent in the year to October, down from a 5.6 per cent reading in September.
Mr Oliver also said that commodity prices, which looked to be embarking on a new “super cycle” would also push the Australian dollar higher.
On the Singapore exchange yesterday, iron ore prices on the December contract were down 0.9 per cent to $US132.65, following the longest streak of weekly gains since January.