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Australian dollar climbs to 2-1/2-week high of 60.2 cents

SYDNEY: The Australian dollar rose to 2-1/2 week highs above US$0.6020 on Monday, recouping more than half of its recent three-cent fall as investors dumped the greenback on diminished hopes of a swift end to the Iraq war.

Traders said the latest spurt was further fuelled by some stop-loss buying when resistance was breached at around $0.6020.

"In the near-term, moves are likely to continue to be driven by moves in the USD," SG Australia senior strategist John Horner said of the Aussie.

"In the medium-term, the outlook remains positive with central banks globally taking further steps to ensure a reflation of the global economy, and making clear that they'll take serious steps to combat any deflationary forces."

The higher yield that Australian bonds offer is also likely to provide good support for the Aussie, analysts said.

It rose to a high of $0.6040, a level last seen on March 12 before settling at $0.6034/39 up nearly half a cent from where it finished locally on Friday.

The Aussie has recovered more than 50 percent of the fall from a three-year high of US$0.6180 on March 6 to $0.5878 on March 18 when hopes of a swift resolution to the Iraqi crisis drove investors to the US dollar.

On the crosses, it was barely changed against the Japanese currency holding near 72.0 yen but was much softer against the euro, which appeared to be one of the main beneficiaries of the latest bout of US dollar weakness.

The single European currency rose to a two-week high of US$1.0832, also recovering more than 50 percent of its fall from US$1.0884 on March 11 to $1.0498 on March 21.

The euro's strength pressured the Aussie/euro pair to a two-week low of 0.5549 euro although by 4:00 p.m., the Aussie managed to regain some lost ground to be at 0.5574 euro, still down from Friday's 0.5602 euro.

"If this Iraqi situation continues with no clear coalition victory, the US dollar is just going to remain heavy," said ANZ chief forex dealer, Paul McNee.

The Reserve Bank of Australia's policy-setting meeting on Tuesday is likely to turn out to be a non-event.

Analysts polled by Reuters on Friday expect the central bank to hold the cash rate unchanged at 4.75 percent for the 10th month running.-Reuters