AMP Capital Investors head of investment strategy and chief economist Shane Oliver said investors should limit their exposure to unhedged international investments as the Australian dollar is poised to surge against the greenback.
Oliver said the combination of strong commodity prices, rising interest rates and favourable economic fundamentals are likely to push the Australian dollar "much higher".
"The Australian dollar appears to be resuming its rising trend. We remain of the view the Australian dollar will reach parity against the US dollar this year," he said.
Oliver said he expected the Australian dollar to reach parity against its US counterpart within six months and possibly trade at between US$1.05-$1.10 in the long term.
For investors, the rise in the value of the Australian dollar would reduce the value of offshore investments unless they are hedged, Oliver said.
"For investors, it means there is a case to limit exposure to unhedged international investments," he said.
But Wingate Asset Management chief investment officer Chad Padowitz said the risk of the Australian dollar depreciating in the medium term is high.
"Over the very short term the Aussie can rise 5 to 10 per cent due to market momentum. However, I do think we are near the end of the rally for the Aussie for a few reasons," he said.
The Australian dollar was being supported by a strong domestic economy, higher interest rates and the country's reliance on China.
"We think there are increasing risks ... the domestic economy could be weakened by higher interest rates, the difference between US and Australian interest rates is unlikely to expand much further, and there are tremendous risks in China due to potential asset bubbles," Padowitz said.
Research house Zenith said it would expect currency to not have a significant impact on returns of international shares portfolios based on historical performance analysis.
"However, from a risk minimisation perspective, we believe investors will benefit from adopting a 50-50 approach when hedging their foreign currency exposure of their international shares portfolios based on the quantitative analysis we have undertaken," Zenith associate director Ben Davis said.
