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A$ falls to below parity with the US$, so where to now?
14 May 2012, 18:04 PM | Source: Ricardo Goncalves, SBS
And that's because there are just too many factors, often unpreidcatble factors, influencing currency moves.
Interest rates, global politics, economic growth and carry-trades are just some of the variables.
The recent slide in the Australian dollar has been attributed to the escalating political uncertainty in Greece.
But last week's better than expected local unemployment numbers prevented the Australian dollar's slide to below parity.
Today though, for the first time since December 20th, the Australian dollar fell to below parity with the US dollar, as Greece fails to form a government, and speculation increases of a Greece split from the Euro.
So is anyone game enough to predict where the Australian dollar is going now?
NAB this afternoon, revised its forecasts, and is now expecting the Aussie to hit US$0.97 by the end of the year because of the turmoil in Europe.
But, at the same time, Reserve Bank deputy governor, Philip Lowe said at a lunchen, that he thinks it is highly likely for the exchange rate to remain high for some years to come.
Much of that will depend on a recovery in economy growth, and a soft landing in China, which demands the bulk of Australia's commodities, thus keeping the local currency strong.
To a smaller degree, interest rates also have an impact on the Australian dollar, because higher rates attract more foreign investors to our currency because they'll get a higher return on their investment.
The market however, is now pricing in a 70 per cent chance of another interest rate cut in June.
Economists at NAB today, have added another interest rate cut to their predictions. They're now penciling in two rate cuts, one in August, with a follow up in September.
On the upside, lower interest rates should help the housing sector.
Today, the number of new owner occupied housing loans rose for the first time in three months, up 0.3 per cent in March.
First home buyer activity fell though, from a 23- month high of 20.9 per cent to 16.4 per cent.
According to Commsec, there's also been a fall in how much money Australians are prepared to borrow for a home loan at $284,500, down 4.7 per cent on a year ago.
And with the major banks failing to pass on any Reserve Bank interest rate cut in full, it should be no surprise that there's been a shift in consumer attitudes towards fixed rate loans, which now account for 14.5 per cent of all loans in March, a four year high.