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If you are a foreign exchange trader or a traveller, this is of importance to you.

The Australian dollar could fall as low as US72c before the end of the year, extending the 13-month lows hit earlier this week.

On Monday night it touched a low of US72.64c, a level the Aussie Dollar has not visited since October 2004, and a narrowing interest rate differential continues to undermine the currency.

The reason for this is that the interest rate differential - the difference between local Aussie interest rates and those interest rates in the US - had narrowed over the last year.

Australia's interest rate advantage now stands at 1.5 percentage points, with local rates at 5.50 per cent and US rates at 4 per cent.

The interest rate differential between Australia and the US is leading to a lower yield for investors, making the local dollar less attractive.

Economists do not believe the Reserve Bank will move on interest rates until well into the new year, while the US Federal Reserve is expected to raise rates again next month.

Westpac chief currency strategist Robert Rennie said the Australian dollar's outlook was as simple as "yield, yield and yield".

"Yields are rising in the US and the US dollar is becoming more attractive, meanwhile the data in Australia has been disappointing, like the employment numbers last week," he said. "The [local] market does not feel that the RBA will put anything into action until some point next year, if at all.

"It's hard to see the Australian dollar staging any meaningful rally while the Fed is raising interest rates and the RBA is set to remain on hold," he said.

>> So the conlcusion is, buy up the USD right now if you are a trader.

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