SYDNEY - The Australian dollar surged to its highest in two weeks as futures traders bet the central bank will raise interest rates this year.
Traders said a report by Rory Robertson, an interest-rate strategist at Macquarie Bank, helped fuel speculation that the central bank, which kept borrowing costs unchangedfor a 13th month at 5.5 per cent yesterday, will raise rates soon.
"The next rate hike could be as little as a month away," Robertson wrote on Tuesday.
Reports the past week have shown consumer spending, borrowing and home building are rebounding, and exports are at a record, bolstering confidence the economy is recovering from its slowest growth in four years.
A report today will probably show a second month of jobs growth, which central bank Governor Ian Macfarlane has warned may push inflation beyond his target range.
"The Reserve Bank of Australia's tightening bias has strengthened significantly in the past few weeks," wrote Robertson. "In my assessment, the risk of economic overheating in the coming year has increased to levels not observed since last March."
Sydney-based Robertson was dubbed "Rate Cut Rory" after he correctly predicted the central bank would cut interest rates in July 1996 through to 1997, betting against the market.
The currency bought US72.33c at 5pm, from US71.36c in late Tuesday trading. It has risen for five straight days.
"The move in the interest rate market is giving some underlying support to the Australian dollar," said Richard Grace, senior currency strategist at Commonwealth Bank of Australia in Sydney, who forecasts the currency will rise to US77c by year's end.
Yields on December 90-day bank bill interest-rate futures contracts jumped 6 basis points yesterday to 5.77 per cent, the highest since December 14, indicating futures traders have increased bets on the central bank raising interest rates.
Macquarie Bank, Australia's largest investment bank, is forecasting a quarter point interest-rate increase by the end of the year. Thirteen of 22 economists surveyed by Bloomberg News expect rates to remain unchanged until the end of December.
Robertson "is credited with re-igniting speculation of a rate hike in coming months in Australia," said Greg Gibbs at ABN Amro. "This has contributed to a rise in the Australian dollar above US72c."
