The so-called carry trade is believed to be behind much of the recent spurt in the Australian dollar's value against the Greenback.

 

Financial commentators are saying that the dollar's value could continue to rise strongly despite the weakness evident at the end of last week when the dollar fell off its recent high of $A1 equalling $US1.10.

 

Rising domestic interest rates will underpin the attractiveness of the Aussie dollar for overseas speculators looking to profit from the carry trade.

 

Goldman Sachs' economist Tim Toohey said last week that the Yen-finance carry trade is  back to mid-2007 levels, with speculators borrowing in yen - at very low interest rates - and buying Australian dollars - allowing them to profit from both the interest rate differential as well as the likelihood that the $A  will continue to rise strongly against other currencies and, in particular, the US dollar.

 

Some commentators have suggest that the carry trade - which has attracted international hedge funds with massive funds to play with - could be worth trillions of dollars in value.

 

According to Toohey, the large interest rate differential between Australia and Japan, and the large amount of yen liquidity after the earthquake which saw the Bank of Japan inject more than 15 trillion yen into the Japanese banking system in March, is fuelling the growth in the carry trade.

 

Commentators say that adding to the demand for Australian dollars is a steady diversification out of US dollars by global central banks as well as the huge demand for dollars to finance the resource investment boom. Toohey says these two factors are accounting $37 billion a year in demand for Australian dollars at the moment, and will do for some time.

 

It is believed that the Peoples' Bank of China is buying Australian dollars and the yen carry trade is back as well - focusing on Aussie dollars.