Narrowing interest-rate differentials with the U.S. will continue to hit the Australian dollar.

You assume it's a scare but you can never tell. The market will always be nervous to events like this.

If this comes to bear, the current 200 basis points advantage for U.S. cash will be preserved through July and ensure the U.S. enjoys sufficient foreign capital inflows.

We will continue to recommend clients, for example, to take Japanese and European equities hedged back into dollars.

Technical analysis also dictates that the euro should decline with a head and shoulders pattern on the weekly charts generating a downside target of parity.

We expect the upward trajectory for the dollar to continue into next year. The main factor underpinning the dollar into 2006 will continue to be interest-rate differentials.