The dollar has fallen to an 11-week low after Australia posted a surprise trade deficit of $480 million in February, further fuelling expectations of a rate cut in May.
The dollar sunk to as low as $US1.0277 after the data's release - adding to earlier falls driven by signals from the Reserve Bank yesterday that it was willing to cut interest rates at its next meeting. Overnight, the US Federal Reserve also downplayed the chances of further US dollar stimulus.
The market had been expecting a $1.1 billion trade surplus.
"The ability of the Aussie to hold above parity is definitely being questioned," said Sydney-based FOREX.com market analyst Chris Tedder.
Investors are betting the RBA will cut its key cash rates on May 1, rating the likelihood as a four-in-five chance, data from Credit Suisse shows.
Australia's central bank, while keeping the cash rate at 4.25 per cent yesterday, said the economy's growth was "somewhat lower than earlier estimated" and that it would await until the release of first quarter inflation data later this month "before considering a further step to ease monetary policy".
Australia's high relative interest rates have been one of factors underpinning the Aussie's run to $US1.10 in late July last year. In the US, US central bank rates have hovered around 0.25 per cent since the financial crisis.
Another influence has been the US Fed's stimulus program known as quantitative easing, which lowered the value of the US dollar compared to other currencies in recent years.
"A diminishing possibility of more quantitative easing from the Fed and underlying weakness in the Aussie has now combined with an augmented chance of a rate cut by the RBA," said Mr Tedder, who believes the next level of resistance for the Aussie would be $US1.011.
"Beyond this we may see the Aussie reaching 93.8 US cents in the short-medium term," he said.
Arab Bank Australia treasury dealer David Scutt said the Aussie could hold above parity despite a stronger greenback.
"Presuming the US economy keeps on its current trajectory and the RBA eases in May, we suggest the currency is likely to hover around parity over the short-to-medium term," he said.
Rochford Capital director Thomas Averill has predicted that the dollar would touch the resistance level of $US1.02 with only an "outside chance" of parity.
"I think the RBA will cut in May but I don't expect it to be the start of a cycle of loosening," he said.
In fact, an improving global economy in the second half of the year will most likely prompt the RBA to begin lifting interest rates by then, said Mr Averill.
czappone@fairfax.com.au