THE euro and the Australian dollar continued to strengthen against the US dollar yesterday as investment money looked for better-yield assets. In early London trade, the euro hit a four-year high of US$1.1073, and the Aussie a three-year high of 62.19 US cents.
The sharp gain by the Aussie was mainly driven by expectations that Australia's interest rate would remain at 4.75%, a large premium to that offered in most industrial countries.
The high interest rate down under, and strong commodity prices, particularly that of gold, have helped fuel the uptrend in the Aussie for more than a year now.
The Aussie, known as a commodity-based currency, has climbed steadily from its historical low of 48.42 US cents against the greenback in September 2001 to above 62 US cents at present.
Investment funds are also flowing into the euro zone because the European Central Bank's 2.5% interest rate makes deposits there more attractive. Comparative rates are 1.25% in the US and zero in Japan.
The announcement of a surge in US consumer confidence in April failed to lure investors back to US assets. Investment funds continued to leave for other parts of the world, applying further pressure on the greenback.
The US consumer confidence index soared to 81 in April from 61.4 in March, reversing four months of steady declines. The jump was the sharpest since March 1991.
However, investors are not totally convinced by the bullish US consumer data. They are awaiting the release tomorrow of non-farm payroll data, which is considered a better gauge of America's economic health.
Unless the jobs picture improved, US consumer confidence still looked vulnerable, London's Financial Times quoted Lara Rhame, a strategist at Brown Brothers Harriman in New York, as saying.
“We're still looking at the last Gulf war, when confidence surged and then fell back and stayed down for a long time,” Lara commented.
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