Dollar heading for US96c in 2008

The Australian dollar is likely to hit US96c by the middle of 2008, according to National Australia Bank forecasts released today.

The continuing strength of the Australian economy – with 4% GDP growth in 2007-08 – two interest rate rises by the Reserve Bank of Australia and the bottoming out of the US construction industry are all likely to contribute to a soaring Australian dollar in 2008, according to NAB.

And inflation is set to surge to a “disturbing” 3.5% next year, according to NAB, breaching the RBA’s 2% to 3% target band and lifting the likelihood that we will see a third interest rate rise by the middle of 2008.

On the markets today, both stocks and the dollar have declined slightly after yesterday’s strong performance. At midday, the S&P/ASX 200 is down 0.2% to 6775.8 and the Australian dollar is worth US91.97c, down on yesterday’s 23-year-high close of US92.45c.