Dollar will reach parity with greenback: NAB

30 Nov, 2009 08:15 AM
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The National Australia Bank (NAB) forecasts the Australian dollar will peak above parity with the US dollar and interest rates to rise to 4.25 per cent by March 2010.

NAB’s head of agribusiness – wholesale banking, Rod Fraser, believes interest rates will rise to 5.5 per cent in 2011.

“After reaching 4.25 per cent in March, we expect the Reserve Bank of Australia will hold off on raising interest rates further until the second half of 2010 when they are expected to rise to 4.75 per cent, and up to 5.5 per cent by late 2011,” Mr Fraser said.

The November edition of the NAB’s Commodities Wrap, focuses on conditions and factors affecting the future of interest and exchange rates in Australia.

NAB's view on the exchange rate continues to be that the dollar will appreciate in the short term, before breaking the US dollar mark in the third quarter of this financial year.

“We believe that the Australian dollar will peak at US$1.03 in the September quarter 2010,” Mr Fraser said.

“The key factors underpinning this forecast are: strong economic growth in China in 2010; further upgrades to global economic growth forecasts; improved investor risk appetites in share and commodity markets; and comparatively high Australian interest rates vs the US.

“Importers and exporters can manage the changing exchange rate and we’re encouraging them to seek professional advice on which options suit their business,” he said.

In commodities, NAB expects total farm production to remain unchanged in 2009-10, however wheat production has been revised down by two million tonnes (to 21 million tonnes) on last month’s outlook, with yields in many areas falling below expectations.

Global wool, dairy and barley prices are up, however sugar, beef, cotton, wheat and lamb prices have fallen, resulting in a downward revision of the outlook for the net value of farm production to around $5.4 billion.

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