The federal government's commodity forecaster expects the Australian dollar to remain strong in the short term, averaging $US1.04 in 2013-14.
The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) says the currency is expected to remain underpinned by Australia's relatively robust economic performance.
Local interest rates also are expected to remain higher than other major economics, while the nation's terms of trade is seen as underpinning the currency, despite easing from a historic peak since in 2012.
"In coming years, an assumed improvement in world economic growth is expected to keep commodity prices at relatively high levels, which should provide support to the terms of trade and the Australian dollar," ABARES says in its March quarter commodities report released on Tuesday.
In the medium term, while the forecaster expects interest rates to rise in major economies, unless these countries significantly tighten their budgets, favourable support towards the Australian dollar is expected to continue.
As such, ABARES expects the Australian dollar to depreciate only gradually against the US dollar, to around parity by 2018.
ABARES expects Australian economic growth to average 2.8 per cent in 2012/13 after three per cent in 2012/13.
"While household spending and demand for Australia's commodities are expected to support economic growth, they are unlikely to offset weaker mining investment," it says.
Inflation is expected to remain modest, averaging 2.5 per cent annual over the same period.
