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The Australian dollar is at risk of a near-term decline even as the global economy shows signs of recovery and risk appetite improves, an analyst says.

State Street Global Markets senior macro strategist Dwyfor Evans believes a more upbeat outlook will make investors confident about investing in riskier emerging market currencies, instead of the Australian dollar.

Mr Evans says the local currency looks “overbought at current levels”, based on technical analysis.

“The move back into risk actually benefited the Aussie dollar because it was seen as a safe risk play,” Mr Evans told reporters in Sydney on Wednesday.

“As momentum on risk appetite continues, that safest risk play may become more of a broad risk play.

“That suggests that the upside from here on the Australian dollar may be somewhat limited.”

The Australian dollar has appreciated about six US cents this month, after touching $US0.7886 on Wednesday morning (AEST).

The currency has advanced about 31 per cent since late October 2008, when it fell to $US0.6012.

“The chance of a near-term pullback in something like the Australian dollar is very real,” Mr Evans said.

“People are reluctant to actually join this run at current levels.”

Mr Evans said the correlation between the performance of the Australian dollar’s performance and the US stock market’s S&P500 index had grown stronger since the collapse of Lehman Brothers in September last year.

State Street has revised its global investor confidence index, tweaking the survey to show the level of risk tolerance in among investors.

The global index rose 3.1 index points in May to 106.3 points, with a level above 100 indicating investors were increasing their allocations to risky assets.

Broken down into regions, the index rose 9.6 points to 104.9 in North America and up 7.5 points to 84.3 Europe.

The index fell 4.9 points to 93.1 in Asia.

There is no specific index measure for Australia.