The Australian dollar climbed to a fresh 17-year peak against the U.S. dollar on Monday, buoyed by gains against the Japanese yen after the weekend Group of Seven (G7) ministers meeting appeared unconcerned about carry trades.
Gains by the Australian dollar were also bolstered by speculation that Australia's central bank will raise interest rates next month to check inflation.
The gathering of finance ministers and central bank chiefs of the world's richest nations reiterated their message on currencies delivered in February in which they had said exchange rates should reflect economic fundamentals.
Traders said this meant carry trades would continue and investors were likely to dump the yen and the U.S. dollar for higher yielding currencies like the euro, the Australian and New Zealand dollar.
"The Aussie dollar rallies received fresh support from the G7 meeting given the lack of any real focus on carry trades or the weak yen from G7 officials, other than Trichet," said Tony Morriss, senior currency strategist at ANZ Bank.
The Aussie has been a major beneficiary of carry trades, where investors borrow in interest rates which are low, to buy currencies with higher returns. European Central Bank President Jean-Claude Trichet said foreign exchange markets should take note of the health of the Japanese economy when taking bets on the yen.
The Australian dollar is also at a fresh 10-year high against the Japanese yen.
The Aussie has risen 8% since it struck a 16-week low of $0.7679 against the dollar, hit
on March 6, on renewed appetite for risky carry trades, with speculation the central bank may lift rates in the coming months luring more investors hunting for better yields.
Growing foreign interest in acquiring Australian companies, higher metal prices and the general strength of the domestic economy and have also lent support to the Aussie currency, analysts say.
Data released last week showed Australia's jobless rate dropped to a 31-year low of 4.5% in March, adding to speculation of a rate rise in the coming months.
The 30-day interbank futures market is pricing nearly a 70% chance the central bank will raise the cash rate to a decade high of 6.5% at its May meeting.
"While the G7 communique was unchanged in terms of currencies, there was a notably upbeat view on the global economy. That also helps explain underlying demand for the commodity currencies," Morriss said. "The next target of the Aussie dollar is around $0.8400."