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A year after parity, Australian dollar hints at comeback

The Australian dollar has marked exactly one year since it last traded at parity with the United States dollar and could be testing $US1 again in 2015, analysts say as the currency edges higher.

The currency rose to a five-week high of US93.98¢ mid-session on Wednesday, up slightly on expectations that the European Central Bank would pursue further easing. Investor confidence deteriorated in Germany during May, ahead of highly anticipated inflation data due later on Wednesday.

The Australian dollar was unmoved by the tight federal budget delivered on Tuesday. Standard and Poor's warned the budget measures may not be enough to reach surplus and further "difficult budgetary choices" may be required.

Commonwealth Bank of Australia forecasts maintain the Reserve Bank of Australia is on track to raise interest rates in the fourth-quarter of 2014, and again in the first-quarter of 2015.

The beginning of an upward cycle in interest rates will ensure fresh support for the currency and could put it on track to repeat parity against the greenback next year.

CBA currency strategist Peter Dragicevich agreed the Australian dollar was trading higher than where the market thought it would be 12 months ago but equally there was good reason for buying.


"The signs and the data suggests that the economic transition away from mining investment is coming through better than what people were expecting a year ago, the RBA has also shifted to a neutral bias from an easing bias... and the effect on the US dollar of asset purchase tapering hasn't been what people expected," he said.

"The global economy is actually looking a lot better. Europe is starting to pick up, the US looks like it's in a better spot as well."

CBA expects the Australian dollar to hit US97¢ at year-end and US99¢ by March 2015.

"A year ago people were expecting the Aussie to be in the low US80s at the end of this year... it's quite conceivable that we do test parity [again]," Mr Dragicevich said.

The RBA may not necessarily be as frustrated with achieving parity amid a tightening cycle compared with its position on a rising currency in late 2013 and to a lesser extent, current levels.

"You need to put the domestic situation in context," the CBA strategist said. "The Aussie has lifted in the last couple of months but the data has improved as well."