This notes looks at the outlook for the Australian dollar.

The key points are as follows:

– The Australian dollar appears to be resuming its rising trend. While the US dollar picture has become more mixed, the combination of strong commodity prices, a rising interest rate differential in Australia’s favour and relatively strong public sector debt fundamentals are likely to push the Australian dollar much higher. We remain of the view the Australian dollar will reach parity against the US dollar this year.

– A stronger Australian dollar presents ongoing challenges for the Australian economy as trade-exposed manufacturers and service industries suffer a loss of competitiveness. For investors, it means there is a case to limit exposure to unhedged international investments.

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