If the Australian dollar reaches parity against the US dollar in the next three months. A hyper-recovery is on the way

And/or hyperinflation in the US.

I have the AUD parity (against the USD) down for early 2010. But with stagflation occurring in the Australian ecomomy the Australian Reserve Bank will increase rates as quickly as possible. But the problem is as the US dollar weakens it will drive up other currencies (even without rate increases), already the EU (particularly France and Germany) are concerned on EURO strength, the Japanese on their Yen or more so the Koreans on their Won and also the export reliant Brazil with a surging Real.

The problem is not so much currencies being too high against the USD, but as a reserve currency (the USD) decreases in value, countries that trade in export markets suffer with their high yielding currencies. The imbalance is that imports will outstrip exports. Particularly when export markets suffered so much when the crisis hit in 2008. Most export reliant countries which are showing trade imbalances; one should also factor in their huge stimulus injections, low interest rates and cash hand outs which are causing a stagflated environment . As inflationary problems from oil and food have increased significantly since the global ecomomy has stabilized in the last 6-8 months. Exports need to be revved up to counter the debits in trade accounts, also countries need to boost incomes since they have all created huge fiscal deficits. *But with the USD declining as rapidly as it, the spill on effect is the structural pain to balance of trade in most countries which are all dying to lift interest rates to fend off inflation.

*(With imports piling up and prices going up and export and economic output low and stagnant. Countries like Brazil and Australia who solely run their ecomomies on commodity exports will have proplems with their high yield currencies.)

The AUD will most definitely hit parity at the current rate of USD weakness and the Reserve bank of Australia interest rate cycle. Australia needs to curp inflation pretty quickly but as it's exports have been crunched, the RBA may only move interest rates in small increases rather than big 0.50% jumps. But China (Australia's trading partner) have already showed that it prefers cheaper commodity imports. So we could see more tension refer to: China's beatdown of Australia - it's all about business or China will just sink it's own currency the Yuan, at the expense of it's (China) own inflation.

But all an all the global economy is completly out of whack with the USD in a near term collapse.