The Australian Dollar strengthened for a second day in forex trading as a rally in U.S. stocks prompted investors to take part in carry trading by borrowing funds from Japan and investing it into higher yielding assets. The Australian Dollar rose to its highest level in three weeks against the Japanese Yen after the Standard and Poor's 500 index had its largest gain in two months. ''The Australian dollar can rise further from here after the bounce in equities,'' said Greg Gibbs, a currency strategist in Sydney at ABN Amro Holding NV. ''The intensifying of the subprime crisis of the last few days has cooled down.''The Australian Dollar recovered from a slump yesterday on issues concerninig bank losses due to bad home loans in the U.S.
In forex trading, the Australian Dollar rose 0.6 percent to 89.63 U.S. cents this morning compared to yesterday's trade of 89.07 U.S. cents. It also rose 1.5 percent against the Japanese Yen to 99.41 Yen.
The carry trading strategy may gain popularity as a government report that will be released today may reveal that wages grew at its fastest annual pace in two years. Rising wages may add to inflation and may prompt a further increase by the Reserve Bank of Australia to raise interest rates higher despite raising cash rates to an 11-year high to 6.75 percent in November 7. ''The risk of wages accelerating could send a shiver down the spines of interest rate traders,'' said ABN Amro's Gibbs. ''It would raise the possibility of a December rate rise and support the currency.'' Australia's contractionary stance and the U.S. decline has caused its exchange rate to hit 23-highs this year.
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