Australian dollar may drop below parity

OVERSEAS holidays and bargain internet purchases may be about to get more expensive as the Australian dollar slides back towards parity.

THOSE overseas holidays and bargain internet purchases may be about to get more expensive as the Australian dollar slides back towards parity with its US counterpart.

The Australian dollar has been the currency market equivalent of the Little Engine That Could in recent times, spending most of the past year comfortably above the 100 US cent level.

However, the engine has run out of steam lately, dropping more than five cents in the past month.

At 1500 AEST on Wednesday the Australian dollar was trading at 102.68 US cents, its lowest level since January 10.

Westpac chief currency strategist Robert Rennie said while the currency was expected to trade between 100 and 110 US cents for most of 2012, it may dip below parity in the next few weeks.

"The speed of decline over the past couple of weeks has us a bit concerned,'' he said.

"I suspect we are going to see a dip below parity sooner rather than later.''

He said April was likely to be a difficult month for the currency with markets sweating on next week's release of, what is expected to be weak, Chinese gross domestic product (GDP) data, which happens to fall on Friday the 13th.

"It will be interesting to see whether Friday the 13th lives up to its name.''

Further signs of an economic slowdown in China, Australia's largest trading partner, would hurt demand for the currency, he said.

The release of domestic consumer price index (CPI or inflation) data later in April and the next board meeting of the Reserve Bank of Australia on May 1, where a cut to the cash rate is expected, were also key dates for the dollar.

However, Mr Rennie said the currency was unlikely to fall far below the key 100 US cent level and would be expected to recover quickly.

"We don't think we're done with that 100-110 US cent range. But even if there is a dip below parity it is likely to be short lived.''