THE Australian dollar is tipped to rise above 90 US cents early in 2008 as the central bank raises interest rates and demand for the country's key resources stays strong, experts say.
However, it's likely to be a different story in the second half, when risks to global economic growth are expected to take their toll.
Foreign exchange strategists believe the domestic unit could fall as low as 80 US cents, as fears of a US recession gather pace and the rate of growth in the commodities-hungry economy of China eases.
The Australian dollar looks set to finish 2007 around the 86 US cents mark, after rising from 79 US cents since January.
The median economist and strategist forecasts collected by AAP indicates the Australian dollar is likely to be trading around 93 US cents in June and 89 US cents by the end of the year.
In early trade today, the currency was trading around 86.85 US cents.
Good year
The year about to end has been particularly favourable for the currency, despite a couple of volatile periods when global credit market concerns weighed on sentiment.
The Australian dollar stepped above 80 US cents in March and then climbed to 94 US cents in November, reaching levels not seen since March 1984 when the currency was around 94.75 cents.
Along the way, it slipped to 76.76 US cents in August as global credit market panic sparked a sell-off in high interest rate currencies like the Australian and New Zealand dollars.
Interest-rate support
ANZ senior currency strategist Tony Morriss said the prospect of two more Australian interest rates rises in February and May next year, coupled with expectations of a cut in US interest rate cut, would propel the Australian dollar to 96 US cents by June 2008.
The would be its highest level since it was floated in December 1983.
The domestic currency has not closed above 96.53 US cents since March 16, 1984, Reserve Bank of Australia (RBA) data shows.
”Domestic demand remains strong (and) commodity prices will hold up and support our terms of trade,'' Mr Morriss said.
”We expect underlying US dollar weakness to be maintained. I would prefer to couch it in terms saying market expectations would be for a further widening of the interest rate differential.''
The US Federal Reserve cut interest rates in December by a quarter of a percentage point to 4.25 per cent.
Conversely, the RBA left interest rates on hold in December, at 6.75 per cent.
But most economists agree Australia's cash rate could go up once or twice in 2008.
National Australia Bank currency strategist John Kyriakopoulos also sees the Australian dollar hitting 96 US cents by mid-2008.
He then expects the currency to recedes to 90 cents by the end of the year, as a further rate cut in the US begins to stimulate a flagging American economy.
”You may see a slowdown in China and the US dollar doing better at the end of next year, once the worst for the US economy is behind it,'' he said.
Mr Kyriakopoulos said the expected Australian interest rates rises would curtail inflationary pressures and alleviated the need for any more monetary policy tightenings.
OzForex manager of corporate business Jim Vrondas said the Australian dollar would fall to 83.50 US cents by June next year, and to 80 cents by year end as a slowdown in world economic growth impacts.
”A global slowdown in economic growth is likely to impact on the resources sector mid to late next year,'' he said.
source: news.com
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