After massive volatility rocked the Australian dollar/U.S. dollar pair (AUD/USD) from February through May, the currency is trading around 0.7660 at the end of July, just slightly higher than at the beginning of 2006.

Several factors whipped the Aussie/dollar to a low at 0.7015 in late March and back to a peak at 0.7795 in mid-May — establishing the current 52-week low and 52-week high in little more than a month — but indicate the remainder of the year may bring more steadiness to the currency’s trade.

Looking back, the Aussie/dollar entered 2006 with a slightly bearish bias; the currency pair had been zig-zagging lower off the March 2005 peak at 0.7986 . The interest rate outlook was fairly steady, as the Reserve Bank of Australia (RBA) had been on hold since March 2005. In mid- March 2006, however, the pace of selling accelerated and the currency plunged to 0.7015, the current low for the year.

“The March sell off was caused by a massive unwinding of Japanese yen-funded Aussie dollar long positions, and also declining Uridashi issuance,” says Prakriti Sofat, economist at Ideaglobal Ltd. “It also coincided with the Japanese fiscal year-end, a time when Japanese investors repatriate funds home.” (Uridashi is referring to debt issued to Japanese retail investors in a foreign currency.)

“The pace of Aussie and New Zealand issuance has slowed,” agrees Rhonda Staskow, regional director FX Americas at Thomson Financial-IFR Markets. “Japanese investors have begun looking elsewhere for yield, including the U.S., Mexico, and South Africa.”