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DJ Australian Dollar Supported as Global Shares Rise
December 23, 2013

By James Glynn SYDNEY--The Australian dollar remained well supported in Asia Monday on news the U.S. economy was stronger than thought in the third quarter, boosting confidence across global markets. The Australian dollar is a confidence play in global foreign exchange markets. Rising shares and talk of stronger activity in the world's largest economy are likely to lift the currency over time. On Friday, U.S. third quarter gross domestic product growth was revised up to an annualised 4.1% from the originally reported 3.6%. The upgrade was largely driven by upward revisions of business spending. Estimates of consumer spending were also revised higher. U.S. stocks rose to record highs on the news. The Dow Jones Industrial Average was rose 42 points or 0.3% to a record high while the S&P 500 rose by 0.5% and the Nasdaq gained 47 points or 1.2%. European shares also rose on Friday, recording their best week in eight months. "It is still hard to be too bearish the Australian dollar when the U.S. stock market is at a record highs. How bad can things be," said Sean Callow, currency strategist at Westpac. At 0440 GMT the local currency was trading around US$0.8928--down slightly from US$0.8968 around the same time Friday. David Forrester, currency strategist at Macquarie Bank, based in Singapore, said he expects a "slow grind lower" for the Australian dollar toward its fair value of US$0.8200 over time. Any rally by the Aussie dollar is expected to be capped after Governor of the Reserve Bank of Australia Glenn Stevens said recently any levels above US$0.9000 would be incongruous with the broader fundamentals of the economy, he said. Mr. Forrester said the risk of a further cut in interest rates by the RBA will grow sharply if the currency rises above US$0.9000. The RBA has cut interest rate eight times in the last two years to support the economy as a mining investment boom fades. So far, non-mining areas of the economy remains sluggish and the central bank has not ruled out further cuts. -Write to James Glynn at james.glynn@wsj.com