Australian dollar to hold parity

The surging Australian dollar should keep most of its gains in coming months to be near parity against the US dollar on hopes domestic rates, already the highest in the developed world, may head even higher.
A Reuters poll of around 45 analysts showed the Australian dollar is seen strong at $0.9900 in the next three months, before pulling back to $0.9700 and $0.9500 in six and 12 months time.
The Reserve Bank of Australia (RBA) surprised many investors this week when it raised interest rates by 25 basis points to 4.75 percent - well above the average 0.54 percent in developed economies - and suggested more hikes could follow.
The hawkish RBA, in stark contrast to the dovish Federal Reserve, which launched its second round of quantitative easing this week, should underpin the Australian dollar.
"In the wake of the unexpected RBA rate hike this week and its still relatively hawkish tone, the Australian dollar should continue to hold the line against the beleaguered greenback," said Roberto Mialich, an analyst at UniCredit MIB. Underlining the Australian dollar's yield advantage, the spread between two-year Australian and US yields hit a 1-1/2-year high of 469 basis points on Thursday.
The Australian dollar tore as high as $1.0064 on Thursday after the Fed tried to shore up the languid US economy by promising to buy $600 billion worth of US government bonds by the end of June 2011 and keep rates near zero for a long time. In contrast, the market sees a 30 percent chance of the RBA raising rates by 25 basis points to 5.0 percent in February.
But analysts noted if the Fed's bold action succeeds in reviving US growth, the US dollar could rebound to drag the Australian dollar lower in a year's time.
Likewise, the New Zealand dollar is also seen flying high in coming months before retreating a touch within a year. A survey of around 40 analysts showed the New Zealand dollar is forecast to stay strong around $0.7500 in the next six months before retreating to $0.7300.
The currency had rallied to a 29-month high of $0.7858 on Thursday after the Fed announced its bond purchases. Surprisingly strong domestic jobs data gave it a further boost.