Australian dollar hits record high against greenback

Apr 21, 2011, 9:34 GMT

Sydney - The Australian dollar on Thursday traded above 1.07 US cents for the first time since it was floated in December 1983.

Investors dumped the greenback and picked up the commodities-backed local unit in the expectation that Australian central bankers would push interest rates above the current 4.75 per cent before the end of the year.

Spurring the currency was a slew of better-than-expected profits from IBM Corp, Intel Corp and other major US companies.

'The markets have taken the very strong results from those companies as a sign that business investment is on the rise globally, particularly in the service industry,' Westpac bank economist Huw McKay told the national broadcaster ABC.

'That means jobs, that means a stronger economy and that means stronger prices for commodities and, hence, you buy the Australian dollar,' he said.

The currency, the world's fifth most-traded, has put on 15 per cent against the US dollar in the past 12 months, propelled by strong demand for commodities from China and other developing countries and the best terms of trade since 1950.

A country's terms of trade measures the value of exports against the cost of imports.

The surging Aussie dollar has pummelled manufacturing, the tourism industry and the institutions that pull in foreign students because it has made Australian products and services more expensive relative to the United States and other rivals.

The Reserve Bank of Australia could lower interest rates to take the steam out of the dollar but, in time, this would ignite inflation and force rates up again.

The high interest rates on offer help pull in more foreign currency looking to turn a profit, augmenting the value of the local unit against the US dollar and traditional safe havens.

The strong dollar is helping the central bank dampen price increases because it makes imports cheaper.

'We're not in the business of regulating exchange rates,' Foreign Minister Kevin Rudd said this week when asked to comment on China, Brazil and even the US keeping their exchange rates down to give a helping hand to exporters and domestic companies that compete with imports.

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