The Australian Dollar strengthened to a one week high as stocks rallied on improved optimism in the market.
The rally in higher yielding currencies, like the Australian Dollar, was supported by China’s vote of confidence on the euro zone, in spite of the regions ongoing battle with debt. China however denied that it was reviewing its positions in European assets.
The positive outlook could also just be short-lived as the information regarding China’s support does not change the economic problems in the euro zone.
Greece, along with Portugal, Italy and Spain also have debt problems that need to be solved. Given this, it is also a matter of time when we see another European debt crisis that could see a lot of investors shunning higher yielding currencies. If this does happen, the Australian Dollar could take a knock once again.
The Australian Dollar has however retraced its recent losses gaining nearly 4c against the British Pound as risk aversion on markets eased. Higher risk currencies were in higher demand by the end of the week, tracking rising equity and commodity prices.
After the previous weeks dramatic sell off in the Australian Dollar, it does not come as too much of a surprise with the price rebound, but it is too early to suggest a distinct shift in mood.
Exchange rates as of 15:27, 28 May 2010
AUD/ GBP: 0.5820
AUD/ EUR: 0.6858
AUD/ USD: 0.8487
AUD/ JPY: 81.733
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