Interest rates likely to hike in December

Ninemsn RBA likely to lift rate in Decemeber

The Reserve Bank of Australia (RBA) is likely to make history on Tuesday by lifting interest rates for a third straight month, economists say.

After more data showing Australia has avoided the worst of the downturn, 13 of the 14 economists surveyed by AAP expect the central bank to lift the cash rate by 25 basis points to 3.75 per cent on December 1, following two 25 basis point moves in October and November.

If it does, it will be the first time the bank has lifted interest rates three months in a row since it started announcing the rises in January 1990.

"The cash rate at 3.5 per cent is way too expansionary on an economy that won't experience the worst outcomes (of the global financial crisis)," Commonwealth Bank senior economist Michael Workman said.

In a sign the Australian economy was doing better than other western nations, Mr Workman said recent jobs data indicated unemployment would peak at 6.5 per cent.

That's below revised Treasury forecasts for the jobless rate to hit 6.75 per cent by late 2010.

In May, Treasury was forecasting an unemployment rate peak of 8.5 per cent.

Recent Australian Bureau of Statistics (ABS) data shows total employment rose by 24,500 to 10.832 million in October, seasonally adjusted, after it shot up by 40,600 in September.

The unemployment rate has hovered around 5.8 per cent in recent months and briefly dipped to 5.7 per cent in September.

Dollar forecast to peak at $US1.03

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The already overvalued Australian dollar will reach parity with the US dollar in the next six to 12 months and peak at about $US1.02-03, a currency strategist says.

State Street Global Advisers head of currency management Collin Crownover says the unit is already overvalued by about 20 per cent and that the figure would stretch out to 30 per cent if it reached the $US1.03 mark.

"I think we'll see about a 10 per cent appreciation from where we are now," the London-based Dr Crownover said in Sydney on Friday.

"At that point, certain dynamics come into play and that becomes an extreme overvaluation.

"Even though Australia has a much better growth profile than the rest of the G10 right now, people at that level might take pause and say even though the growth is a lot better, that's pretty rich, relevant to the valuations used for investments into Australia."

Asked whether he felt the Australian dollar would remain at parity for long he said: "Perhaps not.

"We do think it will reach parity within the next six to 12 months.

"Then the Australian dollar becomes 30 per cent overvalued and historically that's been a point at which we see significant imbalances and it's much more likely to be corrected."