It would appear not everyone will be taking advantage of a cheap overseas holiday with the Australian dollar drawing ever closer to parity with the once mighty US currency.
A new survey released today showed that many homeowners are ditching holiday plans to help pay the mortgage because of higher interest rates and the likelihood of more increases to come.
The boss of the nation's biggest home lender - Commonwealth Bank of Australia (CBA) - has also indicated that bank lending rates are likely to increase beyond that of official moves by the Reserve Bank of Australia.
The dollar struck 99.82 US cents today, its highest level since the currency was floated on the foreign exchange market in 1983.
National Australia Bank currency strategist John Kyriakopoulos said he wouldn't be surprised to see the dollar as high as $US1.10 over the next six months, although he has a formal prediction of $1.05 by mid-2011.
He said this comes against the backdrop of a triple whammy of the US Federal Reserve restarting quantitative easing, a re-acceleration in Chinese economic growth - and hence stronger commodity demand - and the RBA resuming interest rate increases.
Quantitative easing was used by the US central bank during the depths of the global financial crisis, buying up US government debt to increase the flow of money supply into the economy.
"We assume the RBA cash rate peaks at 5.5% in mid-2011 ... with the US Fed likely to keep interest rates close to zero all through 2011 and Australia's commodity prices likely to remain elevated as China's GDP growth remains strong," Kyriakopoulos said.
Most economists had expected the RBA to raise the cash rate to 4.75% last week, but instead it left it at 4.5% for a fifth straight month.
But CBA chief executive Ralph Norris said movements in bank funding costs were impacted by more than just what the RBA did.
"There is no doubt when we look at the current cost of funding that rates are going to increase," Norris told reporters following a business lunch in Sydney today.
"As I said in my address today, the additional cost of liquidity and the additional cost of capital is going to have an upward pressure on interest rates going forward."
With mortgage rates about 200 basis points higher than last year's trough, homeowners are taking measures to shore up household budgets, including downgrading their holiday plans or not taking a break at all.
The latest Bankwest/Mortgage and Finance Association of Australia home finance index found that more than 50% of respondents were giving up a range of everyday necessities to accommodate higher interest rates.
They were taking steps such as eating out less, taking a packed lunch to work, bulk buying food, selling unused items rather than throwing them out, and buying extra lotto tickets.
Another survey showed that consumers were worried about the inflation outlook, which will be a concern to the central bank as rising price expectations can result in demands for higher wages.
The Melbourne Institute consumer survey of inflationary expectations jumped to 3.8% in October, from 3.1% the month before, and well beyond the RBA's two to three percent target band.
