The resilience in the Australian dollar in recent times may have confused some investors, given worries over the health of China – Australia's largest trading partner – but investment bank Morgan Stanley says the upward momentum should remain intact for a while.
The Aussie jumped to its highest levels in four months against the greenback Tuesday to $0.9310 after the Reserve Bank of Australia left interest rates unchanged at a record low of 2.5 percent.
The currency is now up 3.7 percent year to date against the U.S. dollar, despite a string of disappointing data out of China both on the manufacturing and trade fronts.
In a note entitled "AUD: Why so strong?" Morgan Stanley says there are a number of factors drawing investors to the Aussie dollar –in particular, the revival of overseas investor appetite for the Australia's government debt.
They attribute this shift to the fact that the Australian government has returned to printing a lot of new debt, posting a record 23 billion Australian dollars ($21.2 billion) of net bond issuance in the first quarter of this year. This coming after five quarters of little net buying.
Japanese investors led the trend, said Morgan Stanley, buying 5.4 billion Australian dollars in government bonds in the four months to January, having sold 34.2 billion Australian dollars in debt during the 11 consecutive months to September 2013.
The development has led to the bank's analysts to believe "that Australian dollar outperformance can continue," the report concluded.