For the record, at the time of writing, the Australian dollar was trading at 99.12 US cents. That is the highest our currency has been since it was floated in 1983.
I say for the record, because the Aussie has been quite erratic in the moments I was preparing to write this blog.
Currency forecasting is probably one of the hardest financial assets to predict. There are just too many variables that influence their moves, and these variables change very, very quickly.
What sparked this latest round of buying was Australia's jobs report. The unemployment rate remained at 5.1% but more jobs were created. This means Australian consumers will be more confident, which in turn means shoppers will spend more, further fuelling the economy. That may however lead to inflation - and that's what the Reserve Bank is worried about.
In the moments after the unemployment data, the money markets priced in a likely November interest rate hike at 67 per cent, up from 38. Higher interest rates generally lead to a stronger currency, especially when interest rates around the world are dramatically lower than ours.
Take into consideration also, the Bank of Japan surprisingly cutting rates to below 0.1 per cent a few days ago, and there's talk the Federal Reserve may enter another phase of quantitative easing.
That's all making the Australian dollar more attractive to investors over other currencies, purely because there's a higher interest rate attached to it.
The other big influences on our currency are commodity prices (China's insatiable demand for our raw minerals is aiding the Aussie) along with a weaker US dollar.
That's the simplest way to explain why our dollar is so strong at the moment. As for where to now… well… I'm not game enough to predict. However, the next catalyst may be the official inflation numbers which will be out later this month. That may seal the RBA's decision to lift interest rates on Melbourne Cup Day.
And for the record, by the time I finished writing this blog, the Aussie rose to 99.20 US cents.
(Ed: And had just slipped back below 99 US cents at the time of publishing!)
