The Australian dollar advanced to within striking distance of a one-year high on Friday, after robust Chinese economic data supported hopes of a sustained global recovery and boosted demand for commodity-linked currencies.
New lending by Chinese banks rebounded in August while industrial output also expanded, suggesting the pace of an economic recovery in China was quickening. China is the second biggest importer of Australian commodities behind Japan and its resilience has helped Australia dodge a recession.
"The Aussie story is more about a strong China/Asia and our own strong local economy," said Clifford Bennett, chief economist at Kinetic Securities.
"The Aussie may stay very firm above $US0.8595 for a break to new highs and onward to $US0.8785 and then $US0.8910."
The dollar closed locally at $US0.8632, not far from a one-year peak of $US0.8669 struck earlier this week, and up from $US0.8596 at yesterday's close.
It has gained over 1.5 per cent this week on broad US dollar weakness as investors shifted funds to more riskier assets like stocks, commodities and higher-yielding currencies.
The Aussie eased however to 78.71 yen from Thursday's 79.17.
The US dollar hit a seven-month low on the yen in Asian trade and fell to a fresh one-year low against a basket of currencies as investors favoured riskier assets and high-yielding currencies.
The euro rose to a fresh 2009, while the New Zealand dollar scaled a fresh one-year high as investors flocked towards higher-yielding currencies.
Still, the Aussie could face some headwinds as investors pare bets of a rate hike in Australia in coming months.
Overnight index swaps were pricing in no chance of a rate rise in October and November.
But over the next 12 months, investors are betting on Australian rates to rise by 160 basis points from the current 3 percent cash rate. Investors pared chances of an early rate hike after after a surprisingly big fall in employment in August and soft retail sales for July.
Bill futures extended gains, with December bill futures rising 0.03 points to 96.29, while the March contract added 0.06 points to 95.73.
Aussie bond futures rose, supported by US Treasuries after solid demand at an auction of 30-year bonds, which suggested robust appetite for US government debt.
