The Australian dollar is expected to head to a new high if the RBA announces an interest rate rise / File
- Rate rise to stir dollar
- May reach parity with US dollar
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AUSTRALIA'S currency is poised to reach new highs after an expected interest rate rise today.
The dollar has surged to a 27-month high in the past fortnight and most experts said further rises, and even parity with the US dollar, were a strong possibility if Australia's central bank announces a rate rise, The Australian reports.
The dollar's strength is a result of relatively high interest rates and the strength of the local economy, and businesses fear that any upward movement could spook consumers and dampen Christmas trading.
Almost two-thirds of analysts had been betting that the RBA would increase rates to 4.75 per cent, and that was before the release of yesterday's monthly inflation gauge from TD Securities and the Melbourne Institute suggesting that consumer prices jumped 3.2 per cent in the 12 months to September.
The central bank's target zone is between 2 per cent and 3 per cent.
With financial markets pricing in a 73 per cent chance of a rise, TD Securities senior strategist Annette Beacher said the RBA's decision was a close call.
"We believe the low starting point for inflation is not a trigger for the RBA board right now," Ms Beacher said.
"However, ongoing hawkish rhetoric from senior RBA staff members has placed markets on notice, and so we believe the RBA should follow up the rhetoric with a 25-basis-point tightening."
Comments by RBA governor Glenn Stevens about the need for monetary policy to manage strong domestic growth have been blamed for the local currency's latest surge.
In the past fortnight, the dollar has added almost US3c, to touch US97.51 on Friday, its highest level since July 2008.
Yesterday it hovered between US96.8c and US97.3c.
Currency traders and strategists are awaiting further comments from the RBA to ascertain the outlook for rate rises. Several say parity is almost certain.
The Commonwealth Bank has changed its internal forecasts, with currency strategists predicting the dollar will end the year at US97c and rise to $US1.02 by the end of March.
Much depends on monetary policy in the US and Europe, the bank has warned, with the US Federal Reserve unlikely to be in a position to raise rates until the second half of next year and the European Central Bank and Bank of England expected to sit on the sidelines all year.
While economic data locally is mixed - external demand is strong but retail spending and the building and construction sectors remain weak - most experts believe the RBA is keen to act early to minimise inflationary pressure caused by China's continuing demand for resources.
Australian Bureau of Statistics inflation figures are not due until later this month.
However, even if the RBA were to hold rates this month, any pull-back in the Australian dollar might be temporary, IG Markets institutional trader Chris Weston said.
"We are in a perfect storm to see parity come through," Mr Weston said, pointing to China's strength and the US currency's weak outlook. "If it's going to happen, it's going to happen now. If you look at the net long positions, there are 69,000 long contracts held by futures traders right now.
"I think we're likely to see US98.5c tested, but a downside of that is people taking profits."
With today's interest rate announcement coinciding with retail trading figures, retailers will be hoping that the RBA holds off.
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