Aussie dollar jump could predict world growth hike

Some are tipping the $A to reach U.S. 60 cents by the end of the year

By CNN's Grant Holloway

SYDNEY, Australia (CNN) -- The recent recovery in the Australian dollar against the US dollar could be an early indicator of a broader recovery in world growth, economists at Australia's Westpac Banking Corporation say.

Because of the close link between global commodity prices and the Australian currency, movements in the Australian have become a pointer to where the global economy is heading, Westpac general manager, economics, Bill Evans said.

The Australian dollar -- known colloquially to traders as the "Aussie" -- was buying around 53.45 U.S. cents in afternoon trading Tuesday, having bounced up from near US50c in late July and all-time lows of US47c in April this year.

Much of the recent gain is more due to falls in the U.S. currency than inherent strength of the Australian unit and has yet to prove it can outperform the greenback in its own right.

"For the Aussie to have a life of itself we need a better outlook for world growth," Evans told CNN.

But he said U.S. leading index growth and OECD leading indicators were starting to head higher and these were indicators which tended to support the Australian currency.

Evans also said recent Westpac research suggested the Aussie had become "a leading indicator" in itself and movements upwards in the unit preceded strengthening in world growth.

Close link to commodity prices

This phenomenon could be explained by the close link of the Aussie to world commodity prices.

Australia is a world leading exporter of commodities such as coal, iron ore and wool -- products essential to many manufacturing industries.

Increases in these prices tend to precede any ramp up of manufacturing activities.

Evans predicted the Australian dollar could reach a value of US55c by the end of the year, and warned the US dollar was unlikely to fall without a fight.

A more optimistic outlook from Federal Reserve Board chairman Alan Greenspan on Tuesday in the U.S. could easily prompt a greenback rally.

Other economists are more sanguine about the Aussie's prospects.

HSBC chief economist John Edwards said he would not be surprised if the Aussie reached US60c in the next few months and the New Zealand dollar reached US48c.

The Kiwi currency was buying 43.7 U.S. cents Tuesday afternoon.

Westpac's Evans said the New Zealand currency was more reactive to global agricultural commodity prices, which were also improving. A decision last week by New Zealand's Reserve Bank not to move interest rates was also a positive for that currency.