The Australian dollar has hit the highest level since being floated back in 1984.
The currency ended a cent higher in US trading early Saturday around 95.55 US cents, compared to the local close on Friday evening in Sydney of 94.50 US.
It was higher in early trading Monday in Australia, hitting 95.71 US cents, before easing back to around 95.50 US cents.
It was a decisive bust through the 95 US cent barrier that the currency had butted up against but not broken clearly above on two earlier occasions this year.
The currency could not head on towards parity with the US dollar sometime this year if optimism continues about export returns for commodities, high commodity prices and expectations of no easing in monetary policy until 2009.
Oil prices moved through $US127 a barrel on Friday only to pullback, other commodity prices (copper and gold) firmed. Even though oil prices could fall this week with Saudi Arabia agreeing to increase output later this year, it is only likely to put a temporary lid on the investment interest in commodities.
Certainly the Saudi move didn’t spark any help for the weakening greenback which had been monstered lower by news that US consumer confidence had fallen to a 28 year low.
But the strength in the Aussie dollar will put pressure on investment analysts to lift their estimates of the impact of the higher currency on a host of Australian exporters of all sizes: the surprise earnings downgrade on Friday by Transfield Services was primarily due to the market under-estimating the unfavourable impact of the rising Aussie dollar on its 2007-08 earnings.
That is likely to be reinforced by the sharp rise in the dollar Friday night, which came off the back of a drop in the value of the US dollar against a range of currencies.
The resources sector will be protected against a reworking of earnings estimates simply because of the strength in both prices and demand for many commodities: even zinc rebounded last week after easing for some months. Worries about the impact of the Chinese earthquake on zinc output helped the metal higher, and added upward pressure to copper prices as well.
But the ones to be really hit will be investment groups with strong offshore holdings: such as Platinum Asset management. Its shares eased 3.5% or 16 cents to $4.35 on Friday after it told the market that broking estimates for its 2008 results were too high:
"The Company has a policy of not issuing forecast earnings, owing to inherent difficulties in forecasting the level of Funds Under Management ("FUM"), FUM flow, 30 June annual unit trust distributions and investment returns.
"The Company is obligated under continuous disclosure requirements to monitor broker analysts’ consensus forecasts.
"The Company today notified broker analysts covering PTM that it believed the 2009 consensus forecast (EPS 26.46 cps) was perhaps too bullish and based, perhaps, on too bullish an outlook for the level of FUM and FUM flows.
"The Company has a more cautious outlook, given present market conditions and with cash rates currently at 8+%," Platinium said in its statement on Friday.
But the Australian dollar wasn’t the only one to benefit on Friday night: Mexico’s peso rose to a five-year high, while the Brazilian real strengthened to the highest level since 1999.
The greenback had its biggest fall against the euro since March as a drop in consumer confidence and record crude oil prices raised concern US economic growth will slow and force another cut in interest rates from the Fed.
It was the US The dollar’s second consecutive weekly decline against the euro and cut its bounce from the all-time low of $1.6019 reached last month to just 2.7%.
The Aussie dollar rose more than 1% last week and touched a 24 year high of 95.60 US before easing slightly.
Crude oil hit the all-time high of $US127.82 a barrel, leading commodities higher, as Goldman Sachs raised its forecast for the second half of this year to an average of $US141 a barrel, citing supply constraints.
But if commodities come under some sustained selling off the back of another rebound in the greenback, then the Aussie currency will fall.
