The Australian Dollar has risen to its second weekly gain on further speculation that the interest rate advantage the Australia has over the US will increase, increasing the demand for higher yielding assets. Alongside the New Zealand Dollar, the rising Australian Dollar is being supported as investors speculate on an interest rate cut by the US Federal Reserve by half a percent to 2.5 percent. On the other hand, investors are optimistic that the Reserve Bank of Australia (RBA) will raise interest rates by a quarter of a percent to 7.25 percent next month.
''The yield spread is working in favor of the Australian dollar,'' said Matthew Johnson,a senior economist in Sydney at ICAP Australia Ltd, a unit of the world's largest inter-bank broker.
''People are anticipating it to widen further,'' which will push the Australian currency higher.
If rates go higher, the rising Australian and New Zealand Dollars will be popular for investors seeking out the currency carry trade, where you borrow money from a country with low borrowing costs then invest in another country with higher rates. The Australian Dollar has been popular in recent years for the carry trade investment.
In forex trading, the Australian Dollar has risen to 91.95 US cents, in Sydney compared to a previous Asian trade of 91.80 US cents. The Australian Dollar had risen to 92.37 US cents on February 20, the highest in three months. The Australian Dollar also rose against the Japanese Yen, trading at 98.83 Yen from 99.26 Yen yesterday and 98.02 yen last week.
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