The Australian dollar will rise to a record and exceed parity with the U.S. currency as low volatility and the widening yield advantage boosts demand for the so-called Aussie, Commonwealth Bank of Australia said today.
The Aussie will reach 97 U.S. cents by the end of this year and then rise to $1.02 by March 2011, analysts led by Richard Grace, chief currency strategist in Sydney, wrote in a note to clients. Commonwealth Bank also increased its forecast for the New Zealand dollar, which will rise to 74 U.S. cents by December and 76 cents by March, according to the report.
“Low market volatility, widening Australia-U.S. interest rates and firm 2011 Asia-led global growth suggest Australian dollar upside,” Grace and Sydney-based Joseph Capurso wrote. “The Australian dollar will rise through parity to the U.S. dollar by early 2011.”
Australia’s dollar fetched 95.56 U.S. cents as of 2:27 p.m. in Sydney from 95.68 cents yesterday, when it reached as high as 96 cents, the most since July 2008. The median estimate of analysts polled by Bloomberg News is for the currency to decline to 88 U.S. cents by year-end, where it is predicted to remain into the first quarter of 2011.
The Aussie reached its record high of 98.50 cents in July 2008. It fell to as low as 60.09 cents three months later as the collapse of Lehman Brothers Holdings Inc. froze credit markets and prompted investors to dump higher-yielding assets.
The Aussie dollar has gained 7.3 percent this month as a Credit Suisse AG index shows that swaps traders increased to 44 percent the chance that the Reserve Bank of Australia will increase its benchmark rate when it meets Oct. 5.
Investors have also purchased the currency amid growing speculation the Federal Reserve will expand monetary stimulus measures to spur U.S. growth.
Australia’s benchmark rate is 4.5 percent, compared with as low as zero in the U.S., attracting investors to the South Pacific nation’s assets. The extra yield investors get by purchasing two-year Australian government debt compared to similar-maturity U.S. Treasuries climbed to 4.40 percentage points today, the most since June 2008.
“The medium-term economic outlook suggests the Australia-U.S. two-year bond spread will remain at elevated levels for an extended period of time,” the Commonwealth Bank analysts wrote.
The bank’s previous forecast was for the Aussie to fall to 88 U.S. cents by December and 87 cents by March next year.
Australian policy makers expect the economy’s annual growth rate to accelerate to 4 percent by the end of 2012. The International Monetary Fund forecasts the U.S. will expand 2.5 percent that year.