Australian Dollar To Hit Parity With US Dollar.

I sold my long position in CurrencyShares Australian Dollar Trust (FXA) today. I made a nice 6% in about two weeks on it. I sold it because it gapped down and looked like it was going to drop futher in the next week or two.

The US Dollar is due for a short-term bounce which will cause the price of FXA to drop, but thinking long-term, I think the Australian Dollar will hit parity with the USD within 18 months. It isn’t a far fetched idea when you consider that 1 AUD = 1.20 USD in 1981.

Others agree with me. According to Chris Gaffney of Everbank.com:
“Fundamentals suggest the Aussie dollar will continue to rise in 2008. The economy is expected to expand by more than 4% next year, and inflation will accelerate. Overseas shipments of raw materials, which contribute about 14% to Australia’s economy, helped drive 4.3% growth in the second quarter from a year earlier, the biggest increase in three years.”

I strongly recommend Everbank’s free daily newsletter about the currency markets, the Daily Pfennig. It’s pretty good.

A technical analyst at Goldman Sachs suggested “a close above the resistance level 89.25 would set the Australian dollar free to reach parity”.

The Aussie buck traded at 88 cents this morning. Parity is only 13% away.

But in the short term I’m looking for a bit of a pull back.

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