THE Australian dollar will reach parity with the US dollar in the next six to 12 months and peak at about US$1.02-03 (K2.712-39), a currency strategist says.
State Street Global Advisers head of currency management Collin Crownover said the unit was already overvalued by about 20% and that the figure would stretch out to 30% if it reached the US$1.03 (K2.739) mark.
“I think we’ll see about a 10% appreciation from where we are now,” the London-based Dr Crownover said in Sydney last Friday.
“At that point, certain dynamics come into play and that becomes an extreme overvaluation.
“Even though Australia has a much better growth profile than the rest of the G10 right now, people at that level might pause and say even though the growth is a lot better, that’s pretty rich, relevant to the valuations used for investments into Australia.”
Asked whether he felt the Australian dollar would remain at parity for long, he said: “Perhaps not.
“We do think it will reach parity within the next six to 12 months.
“Then the Australian dollar becomes 30% overvalued and historically that’s been a point at which we see significant imbalances and it’s much more likely to be corrected.”
The strength of the local currency two years ago, when it traded as high as US$0.985, was largely due to “speculative flows”, while this time the flows into Australia were of a “more stable, long-term variety,” he said.
The currency was trading at around US$0.9164 (K2.44) last Friday.
Dr Crownover said the US dollar would continue to be the main global reserve currency, despite talk of the emergence of the Chinese renminbi.
He said the current weakness of the US dollar was part of a “cyclical decline”.
“We think the US dollar’s weakness is consistent with the relative economic growth in the US,” he said.
“We don’t see anything abnormal about the US dollar weakness currently at this phase of the business cycle.”
He dismissed arguments that the world was seeing reserve diversification away from the US dollar, leading to the first stages of a US dollar decline. – www.nine-msn.com.au
“While I certainly think that could happen at some point, it hasn’t happened yet,” he said.