If the Australian dollar can weather the copper-inspired correction this week, the currency may continue its steady climb, Graham Bibby, managing director of Richmond Asset Management, says.
Given the depth of the collapse in metal prices, the Australian dollar was showing amazing resilience, he said. Global copper prices crashed 15 per cent in early trade on Thursday, pulling metal prices down across the board.
Copper rebounded in London yesterday, but the market still looks very shaky.
'If the Aussie can stabilise here with the recent shocks we've had, it could show that the underlying strength in the currency is not all commodity based,' he said.
The Aussie traditionally moves with commodity prices, gaining 7.5 between January in May, in line with the stunning rise in commodity prices over that period. But the currency has been underpinned by strong inflows from Japanese retail investors pouring money into high-yielding dual-currency Samurai bonds.
Instead of keeping their money at home earning interest of a few per cent, Japanese individuals are taking advantage of Australian yields approaching double digits.
There are few dual currency bonds in the market at the moment, adding pressure to the Aussie this week.
If those flows should stop, the Aussie could face a painful correction, but that would take a narrowing of the interest rates differential between Japan and Australia.
Most economists and fundamental analysts in Australia forecast a year-end figure of about 80 US cents to the Aussie.
For the short-term, traders see support for the currency about 78.10 US cents. Earlier this year, the Aussie touched a high of 80.35 US cents.
Mr Bibby's technical analysis, by contrast, shows the Aussie in a sharp uptrend after breaking out of a down cycle in the new year.