Oz dollar could hit parity ahead of US CPI

File photo / Supplied.

SYDNEY - The Australian dollar could reach parity with the US dollar in the upcoming offshore session with the release of crucial inflation data in the US.

The local currency was hovering around 99 US cents on Friday ahead of the release of US CPI data, retail figures and a Federal Reserve speech which could indicate how much quantitative easing will take place.

The unit touched a fresh 27-year high of 99.94 US cents overnight, the closest it has been to parity with the US dollar since it was floated on foreign exchange markets on December 8, 1983.

At 1700 AEDT, the Australian dollar was trading at 99.28 US cents, down from Thursday's close of 99.61 cents.

Since 0700 AEDT on Friday, the local unit traded between 98.92 US cents and 99.46 cents.

Nomura Australia economist Stephen Roberts said traders had been waiting patiently throughout the domestic session in the absence of any local data.

"It might be a bit of a patient wait for parity, but we will get there," Mr Roberts said.

He said the release of all important US CPI inflation data, retail sales figures and a speech by US Federal Reserve chairman Ben Bernanke would drive the movement of the local currency.

"Those factors will certainly have some influence," Mr Roberts said.

At the moment, poor US data is being interpreted by investors as adding to the case for quantitative easing, a process whereby the US Federal Reserve increases the amount of US dollars in the economy by buying US treasuries.

It was employed as a tactic during the worst of the global financial crisis and will weaken the US dollar.

In that environment, the Australian dollar could touch one US dollar.

During the offshore session on Friday night, US retail sales for September are expected to have increased 0.5 per cent, while the Empire State Manufacturing Survey is expected to show a moderate pick up.

Meanwhile, the official measure of US inflation for September is expected to show a monthly increase in prices of 0.2 per cent.

Mr Roberts said there could be an initial adverse reaction to the US CPI data.

"But then probably we'll go back to the same groove over the next week or two," he said.

"Running towards the next FOMC meeting, people are still thinking there's a reasonable chance the Fed's going to start the next process of QE."

He said it was possible the Australian dollar would reach parity with the US dollar mid-way through the European session.

CURRENCY TABLE: Currency snapshot at 1700 AEDT

CURRENCY SPOT PREVIOUS CLOSE

AUD/USD 0.9925-30 0.9960-62

AUD/JPY 80.69-73 80.90-93

AUD/EUR 0.7058-65 0.7072-79

AUD/NZD 1.3114-20 1.3063-72

AUD/GBP 0.6195-01 0.6230-36

EUR/USD 1.4058-60 1.4078-80

USD/JPY 81.30-31 81.23-24

EUR/JPY 114.29-31 114.35-37

(*Closes taken at 1700 AEDT previous local session)

At 1600 AEDT, the RBA's trade weighted index (TWI) was at 73.6, down from Thursday's close of 73.8.

- AAP