The Australian dollar reached a four-month high of 80 US cents on Wednesday morning, buoyed by a spike in the price of iron ore.
The rise in the dollar pushed the share market index down, meanwhile, with the ASX 200 falling by 60 points in the first hour and a half of trading.
The last time the dollar was above 80 US cents was on January 22 this year. Since then, it has hovered between 75 and 78 cents.
While the spike is good news for Australians travelling overseas, it is not good news for the economy in general.
With the mining investment boom over, Australia’s economy needs a low dollar to stimulate other areas of the economy, such as manufacture, non-mining exports, education and tourism.
While the spike in the dollar is probably largely down to the iron ore price, it may also have something to do with Reserve Bank governor Glenn Stevens’ comments yesterday,
Mr Stevens warned that record low interest rates and bond yields will make it difficult for retirees looking for reliable income in retirement. It may be that currency traders read this as a sign that the RBA is reluctant to keep the cash rate on hold at the next meeting on May 5.
Currently futures traders are pricing a 50 per cent chance of a rate cut in May, down from 57 per cent before Mr Stevens made his speech. The dollar’s surge may make a rate cut more likely.
At 11:40 am AEST the dollar had fallen to 79.95 US cents, and the ASX 200 was at 5,887.