THE Australian dollar is forecast to reach parity with the US dollar by early next year, reaching $US1.01 by March 2009, according to Westpac.
Westpac yesterday became the first of the big banks to predict the Aussie will draw level with greenback on the back of the booming resources sector.

This comes after the Aussie surged to a high of US95.07 as commodity prices rose and crude oil jumped overnight to a record high just above $US122 a barrel.

In late trading yesterday the Australian dollar eased slightly to US94.71 after concerns inflation may force the United States Federal Reserve to consider raising rates in the next few months.

Despite this fresh outbreak of inflation worries, economists expect the continued strengthening of commodity prices and the weakening of the US economy will send the Aussie higher over coming months.

But it is Westpac's global head of economist Bill Evans who is the most bullish, predicting the Australian dollar will peak against the greenback at $US1.01 by March 2009.

Mr Evans forecasts the Aussie will reach US99 by late this year before shooting through the magical $US1 mark in early 2009.

"It seems a huge stretch to call parity with the US dollar," Mr Evans said.

"However the reality is that we are almost there. In the context of regular volatility in the Australian dollar, a 6.5 per cent move from current levels would be quite unremarkable.

The single most important contributor to the Australian dollar's strength will be a weaker US economy than is currently priced by the currency and interest rates market."

However, the Aussie's recent renewed strength has been driven by higher gold prices and crude oil stabilising at near record levels.

Analysts are becoming increasingly bullish that crude oil prices may rise as high as $US200 a barrel over the next two years with demand outstripping supply.

The burgeoning interest rate differential between Australia and the US is expected to be another major upward driver over coming months.

In the past year, the Aussie has risen 12 per cent against the US dollar as the Federal Reserve has cut interest rates sharply and the RBA has increased Australian lending rates.

In the past two years, the Aussie has risen from US76 in May 2006.

Money market investors switching from the US dollar to the euro and Australian dollar in search of better interest rates for carry trades has been a factor in the greenback's decline of recent years.

In a carry trade, investors borrow in a country with low rates such as the US and then invest the money in Australia, which has a much higher borrowing levels and pocket the spread between the two interest rates.

In contrast to Australia's $2.7 billion trade surplus America's $US700 billion trade deficit has been a further reason behind the greenback's slide on global currency markets.