$a tops us75¢ as metals soar

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    $A tops US75¢ as metals soar, greenback dips
    Dec 06 09:21
    AFR staff and wires

    The Australian dollar broke its shackles overnight, pushing to five-week highs above US75¢ as gold and other precious and base metals hit fresh highs and speculators who rode the $US higher in recent weeks took profits.

    By 8.45 am (AEDT), the $A was trading at US75.10¢, after hitting an overnight high of US75.28¢. This was the highest level since late October and represents a stunning recovery from the the one-year lows at US72.6¢ struck in mid-November when the markets were focused on the US dollar's rising yield appeal.

    Supporting the local currency was further strength in commodities. Gold was the star performer, jumping another $US5.60 an ounce to close at a fresh 23-year high of $US512.60. Silver hit another in a series of 18-year highs while platinum extended its gains above $1,000 an ounce. Palladium rose to a 19-month high.

    On the London Metal Exchange, copper consolidated near record highs around $US4400 a tonne, aluminium jumped to levels last seen in May, 1989. Zinc, lead, nickel and tin were all stronger.

    "If you look at commodity prices today it is just a sea of green," said Westpac's New York-based senior currency strategist Richard Franulovich.

    Also bolstering the local currency was a pullback in the $US, which fell against the euro as talk of central bank support for the single European currency below $US1.17 triggered profit-taking. The Japanese yen remained weak, though, falling to record lows against the euro and eight-year lows against the $A.

    The yen is on the backfoot because Japan is seen as in no hurry to reverse its long-standing zero interest rate policy, despite encouraging signs in its economy. An associated factor is a growing march of Japanese savings abroad in search of higher-yielding investments and tacit support from Japanese officials for a weak yen.

    Here in Australia, the Reserve Bank board holds its final policy meeting of the year on Tuesday. It is widely expected to keep the official cash rate unchanged at 5.5 per cent for a ninth consecutive month.

    The $A has been under pressure recently because of Australia's waning interest rate advantage as central banks elsewhere raise their own rates. The US Federal Reserve has lifted rates twelve times since mid-2004 to 4.0 per cent and is widely expected to agree to a 13th increase when it meets next Tuesday.

    The European Central Bank last week boosted rates for the first time in five years, to 2.25 per cent. The Bank of Canada on Tuesday is expected to raise its own benchmark to 3.25 per cent, while the Reserve Bank of New Zealand on Thursday is expected to lift its cash rate for the ninth time to 7.25 per cent, the highest in the industrialised world.

    Reflecting this shift, the $A has fallen to its lowest levels against the $NZ in a decade, near $NZ1.04.

    But analysts note that apart from New Zealand, Australian rates are still well above those on offer elsewhere. Combined with the unrelenting strength in commodity prices and the $US's failure to break key technical levels, this relative yield attraction has brought the $A back into favour in recent days.

    "The US dollar has been unable to advance significantly through recent cyclical highs, which could be a reflection of market positioning, where speculative longs are sitting around multi-month highs," National Australia Bank's treasury team said in a morning research note.

    "In this environment, the currencies that have fared the best among those looking to lighten their long US dollar positions have been the high yielders, particularly those leveraged to the commodity cycle."

    Bonds, meanwhile, sold off heavily overnight despite softer economic data and weaker equity markets. Australian three-year and 10-year yields were five basis points higher on Tuesday morning, reflecting similarly sized rises in US Treasury yields. Yields move in the opposite direction to prices.

    Analysts said the selling appeared to be technical and related to mortgage-related sales.

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