The Australian dollar continued to trade steadily in the mid US93¢ range on Tuesday, amid predictions the dollar will reach parity by the end of the year.
Late Tuesday the dollar was trading at US93.55¢, largely unmoved by the release of surveys late morning that showed the number of jobs ads fell for the first time in five months in May and that business confidence remained subdued for the month.
In a note released late Monday night, the currency strategy team at Morgan Stanley revised up its forecast for the local unit and now expects it to regain parity with the US dollar by the year's end. That echoes recent predictions from currency strategists at Westpac Bank and Commonwealth Bank of Australia who also are predicting a return to parity with the greenback.
Global demand for AAA-rated paper will result in greater demand for the Aussie, said Morgan Stanley's strategy team. The analysts said that high demand for Australian bonds, plus plenty of supply - $5.5 billion in new debt issued per month - will drive the dollar through parity by the end of this year.
They also noted the steady, if small flow of better-than-expected-data coming out of Australia, saying the "capital expenditure cliff' that Australia was supposed to hit as mining investment wound down had not been reached as expected.
The latest Australian Bureau of Statistics showed that while investment would fall in 2014, it is likely to be 9.3 per cent higher than originally predicted, which has prompted the Morgan Stanley analysts to rename the so-called cliff "a sharp descent".
The broker's analysts said parity was achievable despite further declines in the terms of trade.
"The exogenous factor which makes this possible is a once-in-a-generation increase in export volumes" which has kept the dollar robust, they said.
There is also evidence that interest in the Australian dollar is flowing in from offshore - Japan in particular. Figures from the Japanese Ministry of Finance showed Australian inflows hit $2.9 billion in April taking total inflows to $10.9 billion since September last year.
With more than two thirds of newly issued bonds over the past three quarters being snapped up by foreign buyers, it is clear that there is offshore interest in the Aussie.
Global investors continue to look favourably at the local currency as a result of the European Central Bank's decision last Thursday to loosen monetary policy .
Japanese buyers appear to be offloading in Europe to buy in Australia, said the Morgan Stanley analysts. "Further strong inflows to Australia" are expected to continue if bond yields remain at current levels.
The current yields on 10-year Australia debt is 3.78 per cent compared to 1.30 per cent on German bunds.