The Australian dollar is set to rebound above US73¢ by the end of the year, driven by the huge demand for copper for the build-out of data centres and the prospect of further interest rates rises that would push the cash rate to the highest level since 2008.
The local currency climbed to US69.73¢ on Monday, rebounding from last week’s sell-off to below US69¢ after softer employment data bolstered the case for the Reserve Bank of Australia to hold fire on rates next month.
But Oliver Levingston, a rate strategist at Bank of America, said he expected the currency to hit US73¢ by Christmas, citing a major disconnect in market rate expectations.
“The Aussie is already one of the highest-yielding major currencies, and investors may be too relaxed about inflation,” he said, warning that a hot inflation report on October 28 could push the RBA to raise rates as soon as November 3.
Australia, which has the highest cash rate in the world after Iceland, naturally attracts capital because of its stronger returns, which means foreign investors buying the local currency.
Last month, the central bank raised interest rates for the fourth time this year to 4.6 per cent to fight persistent inflation, which remains well above the RBA’s target band.