Economics
$A hits 6-month high against yen May 29, 2008 AAP
The Australian dollar opened slightly higher, as carry traders pushed the currency to its highest level against the Japanese yen since November last year.
At 0700 AEST, the Australian dollar was trading at $US0.9627/31, up from yesterday's close of 0.9618/22.
Overnight, the unit traded between $US0.9567 and 0.9629.
Bank of New Zealand currency strategist Danica Hampton said yield-related demand underpinned the Australian dollar's rise against the Japanese yen.
At the start of the local session, the Australian dollar was trading at 100.76/83 yen, up from yesterday's close of 100.02/07.
This is its highest level since early November last year, when the global credit crisis started to "unwind", Ms Hampton said.
In carry trades, investors borrow in a country with low funding costs, such as Japan, and invest in countries where rates are higher, like Australia.
Japan's benchmark rate, 0.5 per cent, compares with Australia's official cash rate, 7.25 per cent.
"It is a yield story," Ms Hampton said.
"Among countries across the world, Australia is still holding up very well.
"In the (Australian futures) market a 25 basis point (interest rate) hike is fully priced by the end of the year." This means that the money markets fully expect that the Reserve Bank of Australia will raise interest rates again by 0.25 per cent by the end of calendar 2008, and that is prompting further demand for the Australian dollar.
The US dollar reached a two-week high against the Japanese yen and advanced against the euro overnight after better than expected durable goods figures gave a signal the American economy may be on the mend.
Orders for US durable goods excluding transportation equipment rose 2.5 per cent in April, while median market forecasts were for a 0.5 per cent fall.
Overall orders dropped 0.5 per cent, after a 0.3 per cent slip in March, the US Commerce Department said.
"The combination of better than expected US data and the sell off of US interest rates helped the dollar," Ms Hampton said.
Today the Australian Bureau of Statistics releases private capital expenditure for the March quarter, with the market forecasting a three per cent rise.
Ms Hampton said it was not a key release like retail sales or employment.
"It will get more attention from economists than the market," she said.
If the Australian dollar breaks its overnight high of $US0.9629, Ms Hampton said the local unit could push to 0.9650 in the local session, just shy of its 25-year high hit last week.
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