This article from last year is fantastic, points to understand:
Australian dollar is structurally higher (against US Dollar) than it was in the past. This is due to various factors. The five reasons for the structurally higher Australian Dollar are as follows:
1) Terms of Trade - Australias terms of trade most notably due to the mining boom has significantly boosted the value of the dollar
2) Interest Rate Differential - Australias higher interest rate has boosted investment in the dollar significantly as other economies have very low interest rates
3) The US Dollar - The relative weakening on the US dollar via liquidity injections has increased the value of the Australian Dollar
4) Global Risk Appetite/Aversion - Fear in the global markets has pushed money back to the US dollar/Yen and as this fear has subsided money has returned to riskier trades like the Australian Dollar
5) Technicals - Something i know nothing about and wont try and explain
This article was written support a structurally higher Australian Dollar and was a great article however the economic environment has changed significantly since the article was written. The five reasons could now easily be rebutted as follows,
1) Terms of Trade - Australia's terms of trade has been in reduction recently due to the slowdown occurring in China, if this reduction in terms of trade continues then this will exert negative pressure on the Australian Dollar
2) Interest Rate Differentials - The reserve bank is expected to reduce interest rates and this will reduce the interest rate differential, this will have a negative effect on the Australian Dollar
3) The US Dollar - The US have put a hold on any further monetary easing and as such the US dollar should gain ground against the Australian Dollar
4) Global Risk Appetite/Aversion - The situation in Europe diminishing further (as it appears to be with the long term yields of other peripheral european countries bonds increasing) will increase risk aversion and would lead to an increase in the the US Dollar and other safe assets
5) Technicals - I dont know about technicals but from what ive read apparently we are in a long term downward trend
So thats 4/5 of the elements that have increased the value of the Australian currency potentially weakening the Australian currency. Anybody want to make the argument that the Australian dollar could go higher?
With little to drive the Australian dollar higher and alot of potential for the Australian dollar to fall the smart cash would surely be trying to invest in safer investments?