The Australian dollar rose against the dollar to near the strongest in a decade as Japanese investors bought the nation's higher-yielding assets.
Australia's dollar was also the second strongest against the yen among 16 most active currencies, on speculation investors from Japan will resume buying overseas bonds as a new financial year starts in April. The currency was set for a fourth quarterly gain against the dollar and yen as investors borrowed cheaply in Japan to buy assets in Australia in so-called carry trades.
``It screams out to me that we're seeing carry trades going through,'' said Paul Milton, chief dealer at Societe Generale in Sydney. ``We've seen quite a lot of Japanese interest in the Australian dollar today.''
The Australian dollar was at 80.83 cents as of 4:48 p.m. in Sydney from 80.66 in late Asia yesterday. It touched 81.08 cents on March 26 and the day after, the highest since December 1996.
The currency will trade between 80.6 and 80.9 cents today, Milton said.
Australia's dollar rose 0.8 percent to trade at 94.82 yen from 94.11 yesterday. The nation's key interest rate is 5.75 percentage points above Japan's, which at 0.5 percent is the lowest among major economies.
Australia's two-year government bonds yield 5.48 percentage points more than like-dated Japanese debt and offer an extra 1.77 percentage points over U.S. Treasuries.
Further gains in the currency may be limited by speculation traders are unwilling to buy it above its decade-high.
Speculators have left instructions to sell the currency to protect so-called barrier options that become worthless on a gain to 81.10, 81.25 and 81.50 cents, said Ray Attrill, director of foreign exchange research at Forecast Ltd. in Sydney.
``This means the upside on the Australian dollar will be pretty tough going above 81 cents so it will probably range between 80 and 81 cents this week,'' he said.
The currency last week rose above 80 cents for only the second time since 1996 and extended its rally as traders boosted bets the central bank will lift interest rates from a six-year high of 6.25 percent in coming months.
Its gained 2.5 percent this quarter as interest rate speculation has been buoyed by reports showing unemployment near a 30-year low, rising consumer confidence and retail spending.
The probability of the Reserve Bank raising interest rates a quarter-percentage point by August is 94 percent compared with 26 percent odds two weeks ago, according to 30-day interbank rate tracking futures contracts.
Traders see the likelihood of a rate increase as soon as the bank's April 4 meeting at 51 percent, according to a Credit Suisse index calculated by the exchange of interest payments.
``The Australian dollar will sustain its gains above 80 cents'' and rise to 82 in a month, said Richard Grace, senior currency strategist at Commonwealth Bank of Australia in Sydney. ``Prospects for the currency are very good because an interest rate increase could come as soon as next week.''
Australian government bonds declined for a second day, pushing the yield of the benchmark 10-year security up 2 basis points to 5.85 percent, 1.23 percentage points higher than like- dated U.S. Treasuries. A basis point is 0.01 percentage point.
The price of the 6 percent bond maturing in February 2017 fell 0.181, or A$1.81 per A$1,000 face amount, to 101.104. Bond yields move inversely to price.
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