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Will the Aussie Dollar reach the US Dollar?

With the Australian dollar trading at 12 month highs against the Greenback the question is, “will it reach parity?”

Despite being great news for travelers abroad, is it good for our economy? Here is an article from By Candice Zachariahs of Bloombergs noting the minutes from Octobers RBA meeting.

“The appreciation of the Australian dollar in recent months had reflected the generally improving sentiment in financial markets, the relative outperformance of the Australian economy and the strength of commodity prices,” policy makers said in minutes from their Oct. 6 meeting, when the RBA unexpectedly raised rates by a quarter-percentage point.

The Australian dollar’s 32 percent gain this year may extend toward parity with the greenback as market expectations of interest-rate gains are fanned by a “hawkish” central bank, Sydney-based Roger Bridges, who helps manage the equivalent of $11 billion as head of bonds at Tyndall Investment Management Australia Ltd., said in an interview yesterday.

National Bank of Australia today forecast the Aussie will trade at $1 by March 2010 and peak at $1.03 in September. NAB, Australia’s third-largest bank by market value, joins Barclays Capital and Citigroup Inc. in forecasting the currency will trade at parity. Morgan Stanley warned of a “temporary parity break” while saying the Aussie is “chronically overvalued,” in an Oct. 15 research note.

Benchmark interest rates are 3.25 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits”