Aussie dollar may be headed below parity

7 Sep 2012, 11:46 am   -   Source: AAP
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Since the start of 2012, the Australian dollar, known as the

Since the start of 2012, the Australian dollar, known as the "Aussie" in financial markets, has spent only a few weeks below the $US1 mark and has traded as high as 108 US cents.

The Australian dollar may be headed below parity with its US counterpart before the end of September, according to a leading currency expert.

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The Australian dollar could head back below the $US1 mark within weeks as currency markets sour on the little battler.

In recent years, Australians have become used to their currency, which 10 years ago was worth about 50 US cents, outclassing its American counterpart.

Since the start of 2012, the Australian dollar, known as the "Aussie" in financial markets, has spent only a few weeks below the $US1 mark and has traded as high as 108 US cents.

However, Westpac chief currency strategist Robert Rennie says it could fall below parity in the coming weeks and remain under pressure for the next few months.

"I still think we'll see the Aussie dollar lower in the coming weeks, possibly as low as 98 US cents," he told AAP.

Financial markets have been harsh on the Aussie dollar recently amid speculation the country's mining boom may be over.

Falling commodity prices and slowing economic growth in China, Australia's biggest trading partner, have seen miners BHP and Fortescue shelve or delay projects in the past three weeks.

However, the currency has regained some ground in recent days after official employment data showed the national unemployment rate fell to 5.1 per cent in August.

An announcement from Europe's central bank that it would act to push down the high borrowing costs of financially-troubled euro zone nations - like Spain and Italy - on Thursday night has also provided a boost for the Aussie.

However, Mr Rennie said, choppy seas lie ahead for the currency.

Concern about the Chinese and European economies remains, while the US presidential election will also provide some market turbulence.

Meanwhile, US Republicans and Democrats must agree to a deficit reduction plan by the end of the year before Bush-era tax cuts are due to expire and deep domestic spending cuts automatically kick in.

If no deal is reached, it is feared the US economy will plunge into a recession as it falls off the so-called "fiscal cliff".

However, Mr Rennie said, the outlook for the Australian dollar was likely to improve in 2013 if China delivers a much hoped-for fiscal package to stimulate its economy.

"As we move towards the end of this year and early next year, we actually expect the Aussie dollar to regain a lot of the ground it has lost," he said.

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