Aussie Dollar to hit parity with US Dollar, predicts analyst

The Australian dollar is on track to achieve parity with the US Dollar in 2010, according to city analyst Duncan Higgins, of currency broker Caxton FX. With risk appetite in the market on the up, demand for the "riskier" Australian dollar has found strong support, and traders have sold the greenback in favour of its higher yield.

Higgins' forecast follows a raft of upward revisions of the Aussie dollar's outlook by major banks, including the Reserve Bank of Australia earlier this week.

Higgins comments, "Over the past six months, the Aussie has gained 20 per cent in value against the US currency, as investors have sought to move their funds out of the dollar and into higher-yielding assets.

"With Australia the sole major economy to escape entering a recession, its stimulus measures were far less invasive than other nations, and importantly, interest rates have held at a comparatively high rate of 3.00% (whereas the UK and EU rates are held at 0.5% and 1.00% respectively.)"

If parity is achieved, it will be the first time in nearly 30 years that the Australian Dollar has equalled the US Dollar in value. It last came close in July 2008, when it hit 0.97 AUD to 1 USD.

So is the Aussie Dollar's strength set to continue?

Higgins continues, "The Australian dollar's strength has, in part, come from the economy's continued outperformance over other nations, but there will soon be a time when the other nations will start to catch up. Interest rates in the eurozone, the US, and even the UK are unlikely to remain at record lows into 2011, and as their respective recoveries gather pace, investors will begin to buy into other assets, which would bring the price back down.

"A one to one price could come about by mid 2010, depending on when the Reserve Bank of Australia raises rates, however, this would be unlikely to continue far past the end of the year as other economies stabilize.