The Australian dollar surged roughly 1.7 percent to its highest level since mid-June after the Federal Reserve shocked markets with its decision not to taper its asset purchase program. But analysts say the rally could be a mere knee-jerk reaction, noting the fundamental picture still points to weakness in the long term.
"Largely the rally can be attributed to a couple of events," said Michael Mattiussi, corporate foreign exchange dealer at Western Union Holdings, referring to recent positive data out of China coupled with the Fed's announcement on Wednesday.
"Unfortunately [the Aussie] might be held hostage again to headlines coming out of the Federal Reserve... when they do start to taper the Aussie will fall back to a range of US$0.80-US$0.90," he added.
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The Australian dollar has had a volatile run this year. After remaining stubbornly strong for the first four months of 2013, concerns over a slowdown in China, the end of the Australia's mining boom and dovish comments from the country's central bank helped knock the currency down to lows not seen in over three years, last month.
However, the Aussie has seen a turnaround over the past few weeks surging nearly 7 percent since the start of September, as signs of stabilization in China and the formation of a new government helped boost sentiment.
Some analysts believe the currency has bottomed out and have even gone as far as to describe it as a "screaming buy" but others were doubtful over how long the good times would last.
Keagan York, co-founder and director at Compass Global Markets, said he saw the Aussie moving slightly higher from current levels over the next few weeks, but said any substantial upside would be limited as tapering concerns come back to the fore.
"I think it might be the case that we get to US$0.96 or US$0.97 [but] we still can't see parity in the short term," he added. "The Aussie is stuck in a US$0.92 to US$0.97 range now probably until Christmas, because there is still an expectation that the tapering will happen next year."
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York added that he expected Australian importers, together with deposit holders, to use this recent rally as an opportunity to get rid of some of their exposure to the Australian dollar, also capping any further gains.