KEY POINTS:
Pack your bags and go overseas before Easter if you want a cheaper holiday, senior Australian currency strategists are telling their countrymen today.
The Australian dollar could being buying as much as US83 cents in coming weeks amid expectations that interest rates will rise next month.
Imported goods
are now at their most affordable since December 1996, when the domestic currency last bought more than US80 cents.
"I'd say go to Japan, go to the United States, even in Europe and the UK levels are up higher," RBC Capital Markets senior currency strategist Sue Trinh said.
The Australian dollar has gained 5.3 per cent against the US dollar in the past fortnight.
It has gone from buying to US76.85 cents on March 6 to fetching almost US81 cents this week.
Half of all Australian imports are invoiced in US dollars, and a stronger local dollar means lower prices for cars, computers, televisions and clothing, CommSec chief equities economist Craig James says.
"A record 27 per cent of all consumer goods now come from abroad, a ratio that has basically doubled over the past 12 years," he said.
"So an Aussie dollar above US80 cents does matter.
"Cheaper imported goods will drive down the rate of inflation."
The Australian dollar has also strengthened 7.4 per cent against the Japanese yen during March, which is more likely to buy a more affordable stay in the world's most expensive city of Tokyo.
Speculation that the Reserve Bank of Australia (RBA) may put up interest rates is pushing the local dollar higher, with more than half of economists predicting an increase in April.
But if rates don't rise then, rake hike expectations will move out to the following month, leaving room for the local currency to keep on rising, perhaps to as high as US85 cents by May, Ms Trinh said.
In the meantime, more Australians are likely to book overseas holidays which means local operators are likely to lose business.
The federal government's export arm Austrade, however, does not expected overseas tourists to cancel their holidays Down Under, if travelling to Australia becomes more expensive.
"People still want to come here," Austrade's chief economist Tim Harcourt said.
"They may not do as many fancy leisure activities as they could have if the exchange rate was stronger.
"Maybe they won't have a restaurant meal every night."
When the Australian dollar was in similarly strong position in late 1996, Thai and Malaysian consumers continued to buy more expensive Australian beef and beverages, Mr Harcourt said.
And consumers in Asia and the Middle East won't necessarily pay more for Australian-made cars, he added, because cheaper imported components could keep costs down.
Australia consumers enjoyed their most powerful exchange rate in March 1989, when the currency was buying US89.60 cents.
Economists say the Australian dollar is likely to start dropping back below US80 cents from mid-year, assuming the next expected rate hike occurs before June.
Either way, bargain spotters planning a spending splurge to cash in on a muscular Australian unit shouldn't forget that if interest rates rise, they could be saddled with a hefty credit card bill.
And that means less to spend on Easter eggs.
- AAP
