Dollar Parity (poll) and $200 Oil

For a while last month, when strong company earnings were being reported, it looked like the US dollar was gaining ground against the world's currencies including the Aussie dollar. Oil prices were also falling and some economists had starting predicting that the worst may be over. Unfortunately, this turned out to be a false dawn and the US dollar continues to erode in value and subsequently oil prices are on the rise as well (they have an inverse relationship).

Oil prices continue to hit new records every day and recently peaked over $US120. Goldman Sachs, the worlds premier investment bank, projects $US200 oil in two years - though at the rate we are touching new highs everyday I think this may come sooner than we think. At a consumer level we are feeling the impact of oil prices in our driving costs and increased grocery costs. This impact will continue to grow despite all the measures we can put in place to reduce our reliance on fuel or to shop more effectively. So you might as well make some money from the forecast for future higher oil prices. I would suggest investing in proven oil producing and integrated oil companies. My top picks in these sectors are BHP, Woodside (WPL) and Worley Parsons (WOR).

Now on to the Australian dollar. It looks like it is only a matter of time before it hits parity with the US dollar and is currently trading at US 94.5c. Westpac bank expects the Australian dollar to hit US 96 cents in December before rising to $US1.01 by March next year. Commonwealth Bank sees a 45 per cent chance that the currency will hit parity with the US dollar this year. National Australia Bank currently forecasts a peak of US96c for the Australian dollar while ANZ is forecasting a peak of US95.50. ``With risk aversion heading lower, people will pile into commodities and the commodity currencies (like the Australian dollar) will outperform,'' said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. in Sydney. ``Outside the U.S., economic growth is holding up.''

I think the Aussie dollar will hit parity with the US dollar around September this year - just before the US winter season and as a result of shortages in supplies following US summer driving. What do you think? As I have done in the past I have set up a user poll at Finance ViewPoint. It is on the top left of the website and you can click here to vote. I'll publish the results as a comment against this post in 2 weeks when the poll closes.