SYDNEY, March 28, 2011 (AFP) - The Australian dollar looks set to surge to new highs against the greenback, analysts said Monday, after it hit a record on the back of growing risk appetite caused by confidence in the global economy.
The commodities-backed Aussie hit 1.0295 US dollars in late New York trade Friday, its highest level since being floated in 1983, after comments from a senior US central bank about hiking rates "sooner rather than later."
"Over the weekend (the Aussie) did mark a new record high just under $1.03 (after) there were some pretty aggressive speeches from some of the Federal Reserve members about the need for higher rates," Commonwealth Bank currency strategist Joe Capurso told AFP.
The Fed official said it should return monetary policy to more normal settings -- such as raising interest rates from close to zero -- reinforcing faith in the economy.
The comments came after the Commerce Department revised fourth quarter US growth to 3.1 percent from the previous forecast of 2.8 percent.
Those signs of confidence in the world's largest economy were boosted by strong commodity prices, a key fundamental of the Aussie, said CMC Markets analyst Tim Waterer.
"There does seem to be a lot of upside to the gold and oil prices and that will lend support to the Australian dollar," Waterer told the AAP news agency.
Japan's decision to flood markets with cash in the wake of the earthquake and amid the nuclear crisis was also expected to boost the Aussie -- a high-risk currency -- "as Japanese investors shift back into favoured high-yielding assets," added BNP Paribas.
Uncertainty about the European bailout and Middle East tensions saw the Australian currency dip back to about 1.0250 in early Monday trade.
But Capurso said he expected the Aussie to march further still, with strong retail and building data due out later this week likely to firm the case for a hike in Australia's benchmark interest rate, currently at 4.75 percent.
"At the moment the money market is pricing in a rate cut, and I don't think that's justified," he said, predicting that the Aussie would "make another record high, maybe reach 1.04" into Friday.
Recession-proof Australia's mining boom has seen its currency soar above or near parity with the greenback for about six months.
Even Japan's earthquake and nuclear crisis were merely a blip on its otherwise solid performance, driving it below parity for just six days.
"We had the floods; we had the earthquakes; we had the nuclear meltdown, yet all the AUD could drop to was just above 97 US cents," Westpac bank said a client note.
"What will it take to knock the Australian dollar lower?"