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To Parity And Beyond For The Aussie Dollar?
FN Arena News - November 02 2007

By Chris Shaw


With the US Federal Reserve cutting interest rates earlier this week and the Reserve Bank of Australia (RBA) widely predicted to tighten rates next week the Australian dollar is enjoying a significant positive interest rate differential against its US counterpart.


Throw ongoing strength in commodity prices into the mix and it is no surprise the Aussie dollar is trading at well above 90c against the US dollar and as high as 93c in recent sessions.


But as TD Securities global strategist Stephen Koukoulas notes, the Australian dollar has actually underperformed against the US dollar when compared to the growth in commodity prices since the beginning of the commodities boom.


He estimates an equal performance would have the dollar trading at something more than US$1.30 by now, meaning there appears to be a lot of upside left in the Australian dollar, particularly given the likelihood of further increases in interest rates by the RBA beyond next week.


As a result TD Securities has lifted its Aussie dollar forecasts, expecting the currency to hit US97c in the first quarter next year before reaching parity sometime in the second quarter. It is not expected to stop there as Koukoulas estimates it could trade as high as US$1.02 in the September quarter of 2008 before coming back to parity by the end of next year.


He suggests any dips, such as occurred last night in the wake of Wall Street’s shakeout, make for good entry points into the Australian dollar.