PIMCO COO Doug Hodge was in Australia on the weekend talking up Australian rate cuts in the middle of 2013.

“We have seen a downturn in the terms of trade and you would expect that would already have lead to a depreciation of the Australian dollar, but it hasn’t happened; the dollar has remained remarkably strong,” Mr Hodge said.

“Part of that is the other side of the coin of QE happening everywhere else in the world (and forcing investors to seek higher rates in countries like Australia).

“Our view is that the Australian dollar probably comes off the boil a bit and that in order to offset some of the downturn in commodity markets the Reserve Bank would lean towards a more lenient policy and perhaps cut rates over the next six to nine months.”

Even with AUD/USD falling below 1.05 in the past hour, the momentum remains to the upside but it will be difficult to break 1.10, under any near-term scenario.