After briefly falling below parity with the US dollar at the weekend, the pressure will again be on the Australian dollar this week with a number of indicators of the health of the US economy to be released.
The dollar fell to a low of $US99.61¢ during the New York session, before a late gain pushed the dollar back above parity to close the session at $US100.25¢. Earlier on Friday it had traded at $US100.80¢.
The move in the dollar came during a broader surge in the US dollar as commodities retreated, extending the biggest two-day rally in the US dollar in nearly a year. The dip below parity caps off a wild week for the dollar, which started last Monday at $US103.15¢.
The Reserve Bank cut official cash rates to a low of 2.75 per cent partly to take some of the heat out of the persistently high dollar. Even so, the currency began rising on Thursday, after official figures showed jobs growth through the economy was running faster than expected.
While the dollar last broke parity in June, the currency has mostly traded above $US100¢ since early 2011, which has put the squeeze on export-oriented industries. AMP Capital head of investment strategy Shane Oliver said the dollar had "decisively broken down" the range trading of $US102¢ to $US106¢ since July last year.
"A lower Australian dollar is just what Australia needs right now," Dr Oliver said.
The latest moves are largely driven by renewed strength in the US dollar amid signs of confidence over the strength in the world's largest economy. This has led to speculation over when the US Federal Reserve Bank will start to wind down its massive $US85 billion-a-month bond buying program, a move in itself that is likely to see the US dollar push higher.
"Further losses are possible in the Australian dollar after the Reserve Bank cut its inflation outlook," said managing director of currency exchange strategy at BK Asset Management, Kathy Lien.
However, a number of US economic data releases, including retail sales, industrial production and inflation figures, may challenge the US dollar rally.
"We forecast a 0.7 per cent drop in headline retail sales, below the 0.3 per cent [fall] consensus," said BNP Paribas strategist Vassili Serebriakov. "Later in the week, we expect a 0.4 per cent contraction in industrial production, and a second monthly consecutive drop in headline CPI."
This week, the US dollar traded above ¥101, jumping 3.6 per cent to the highest level in four years.
It performed strongly against all major currencies last week, up 1 per cent against the pound, 0.9 per cent on the euro and 2.4 per cent against the dollar.
Currency strategists still expect the Australian dollar to remain under pressure as the mining boom peaks, the Chinese economy maintains its weak outlook and the US economy recovers.