The Australian dollar has soared to its highest level in over two years, driven by a sharp fall in the US greenback.
The dollar was yesterday trading above .78 US cents – up 7.6% from the recent low of .7326 cents in mid-May.
The strengthening Australian dollar comes as expectations of US interest rate rises begin to fade amid disappointing US economic data.
But remarkably it has also risen against most other currencies.
Earlier this week, the National Australia Bank said the Australian dollar was overvalued by about 10 percent on a real trade-weighted basis, posing potential problems for Australia's trade-exposed sectors.
Should the surge continue, Australian exporters will start to find it a little harder to compete in the international trade market, with strong inflows of imports expected.
Further interest rate cuts unlikely
In the past seven months Australia has run a substantial surplus of over $17 billion on the international trade balance. This suggests exporters have been doing well in competing with importers.
If it keeps rising, there could be fall out for non-commodity exporters and those firms competing with imports.
Most economists agree the recent rise in the dollar won’t trigger interest rate cuts, but it will prevent them from lifting.
The obvious risk is a rise to at least the US80c in coming weeks, defying widespread predictions that the dollar would fall to US70c by late 2017 or early 2018.