The Australian dollar rallied against the US dollar, regaining parity with the US currency and shrugging off a disappointing reading on Australian consumer confidence.
As further flooding hits the country, investors have been looking at the potential cost of the cleanup operations, which are estimated to be in the region of A$20 billion for Queensland alone. This, combined with increased food and commodity prices, has fuelled expectations of an increase in inflation and an earlier-than-expected rise in interest rates by the Reserve Bank of Australia. Understandably, Australian confidence has taken something of a knock as a result of the floods, with the Westpac consumer confidence measure dropping by 5.7% in January. This obliterated the 0.2% gain seen in December, although optimism may recover as the floodwaters recede. Further news updates on the floods, together with reports about eurozone bond auctions will drive this pair in the short term. Reports of Chinese buying of European bonds have helped to reassure investors about the stability of Europe, and this has helped riskier assets such as the Australian currency.