With commodity prices sinking and iron ore and coal set to decline further in the near term, at least one analyst is not prepared to call the bottom of the cycle and thinks the Australian dollar could weaken to as low as US50¢.
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Despite its rise in recent days, the Australian dollar is now seen as close to fair value, but should continue to track the price of key commodities such as iron ore and coal.
According to most modelling, the currency's current level around US73¢ clearly reflects the country's terms of trade - the value of exports against the cost of imports - along with the difference in bond yields between Australian and the US.
When the US Federal Reserve finally lifts its target rate, the local unit is expected to depreciate further, moving closer to US70¢,¢ according to a gathering consensus of economists.
Any further declines in commodity prices will have the same effect.
Just how much further iron ore and coal sink, however, is open to debate.
While some commentators say prices have stabilised, research from fund manager Kaizen Capital argues that, if history is any guide, they still have a way to fall.
Using the Thomson Reuters Equal Weighted Continuous Commodity Index, chief investment officer Connor Grindlay argues that it's too soon to call the bottom of the cycle.
"Typically, commodity bull markets experience large - three to four times - increases, which last for a decade and are then are followed by periods where prices do nothing, or fall," he wrote.
In the bull market of the 1970, the index rose by 3.5 times in value from October 1971 to November 1980.
It then fell 46 per cent over the next 21 years, albeit with some deviations, before bottoming out in October 2001.
"In the next commodity boom, which started in October 2001, prices once again rose sharply and the index rose by 3.8 times in value, peaking in April 2011," writes Mr Grindlay.
In each of those cycles, the Australia dollar peaked or hit a trough just months after the index, hitting, for example, highs of $US1.19 in 1981 and $US1.10 in July 2011 and a low of US46.3¢ in April 2001.
Following this pattern, if the current downtrend still has years of life in it, the Australian dollar could eventually trough at US50¢ or less, Mr Grindlay argues.
The current capacity glut, coupled with slowing growth rates in China, points to further declines in key commodity prices, he argues.
"The high prices of the 2000 bull market, just like in the 1970s, spurred commodity producers to invest heavily and increase supply," he says.
"When supply exceeds demand, prices fall.
"We believe that is exactly what is happening today.
"In addition, the world economy is much weaker than forecasters thought in 2007, so the expected demand has not materialised but the increase in supply has."
