Book that trip to New York now and get that online shopping done because when it comes to the Australian dollar, it’s all downhill from here.
The dollar has taken a dramatic fall in the past three weeks, falling almost six US cents – from US94 cents to a near eight-month low of US88.18c.
And the closer the US central bank gets to raising interest rates, which is expected to start in 2015, the lower the Australian dollar will go.
The Australian dollar is expected to finish 2014 at US87c, according to an AAP survey of 14 currency analysts.
And they are forecasting a trading range of between US77c right up to US95c in 2015.
“The wheels are finally beginning to fall off the Australian dollar after a prolonged time at historically high levels,” ThinkForex senior markets analyst Matt Simpson said.
Mr Simpson said the currency would trade between US77 and US85c next year.
He said the Australian dollar typically traded around US70c to US80c before the global financial crisis, after which it was considered a safe haven by investors who had previously never traded it, resulting in an inflated currency.
The Australian dollar has been considered attractive by investors because they can get high yields – among the best in the world – without higher risk.
“Once global growth returns to normal levels, then we can expect the Australian dollar to return to historically normal levels, regardless of what the domestic interest rates are,” Mr Simpson said.
Reserve Bank governor Glenn Stevens has repeatedly expressed his desire for a lower Australian dollar, around US85c, to help achieve balanced growth in the economy.
Western Union Business Solutions currency strategist Steven Dooley said the governor’s wish should be granted by year-end.
He said the dollar should return to its long-term average of between US75 and US80c as the US starts raising interest rates.
“Eighty per cent of the puzzle is going to be US interest rates, another 20 per cent is commodity prices and what happens out of China,” Mr Dooley said.
“We’ve had seven years of stable US interest rates and seven years of US interest rates next to zero – we’ve never been in an environment like this.
“So that’s going to be the big focus next year, how do we handle this extremely unusual shift in financial market conditions.”
While a lower Australian dollar might mean less spending money for US-bound travellers, it’s the greatest good for the greatest number of people, Mr Dooley said.
“A high Australian dollar has a small positive effect for nearly everyone,” Mr Dooley said.
“A low Australian dollar has a large positive effect for a smaller group of people, but the impact is much, much better.”