The euro to dollar exchange rate (EURUSD) will most likely not fall to parity in 2015 argues a new forecast note issued by National Australia Bank.

The call stands apart from a host of financial publications and institutional research houses predicting an exchange rate of 1:1 being achieved in 2015.

Indeed, there appears to be a change in sentiment towards the dollar - it is not the same bullet-proof bet that it once was.

The key driver fuelling the 'parity camp' is the massive bond buying programme announced by the ECB which will see 60BN euro released into the Eurozone economy every month until late 2016.

The increased liquidity, will by various mechanisms, drive down the value of the shared currency.

Improving Data Supports the Euro Exchange Rate

There is of course the risk that the entire bond-buying programme at the ECB has been priced into current euro dollar exchange rate levels.

Furthermore the programme could actually work and boost the economy which in turn arrests euro declines.

We have received early signs of such an improvement today when the composite Eurozone PMI rose to 54.1 from 53.6 with services especially rising strongly to 54.3 from 53.9.

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“The only way that EUR/USD resumes its creep towards parity would be if EZ economic data began to deteriorate once again which is why next week's flash PMI readings could prove crucial to the near term price action in the unit,” says Boris Schlossberg at BK Asset Management.

A better than expected reading in EZ PMIs would provide investors with confidence that ECB's QE program is starting to work and could propel the pair towards a retest of the recent 1.1000 highs suggests Schlossberg.

We are Not Part of the Parity Party say National Australia Bank

NAB have updated clients with their latest exchange rate forecast note in which they are quietly confident that the Australian dollar will remain supported through the year.

They also see the NZ dollar remaining frim until at least 2016.

With regards to the euro dollar exchange rate they diverge from other bank forecasters by suggesting parity in EURUSD is unlikely.

We mentioned that a major driving force behind EUR losses has been the 60BN EUR monthly purchase programme planned by the ECB.

NAB point out, “to date the first weekly purchase totals of some EUR9bn don’t instil huge confidence that the ECB will be able to fulfil its intentions here. The ECB has said there are other assets it could purchase and while we would not expect the ECB to give any hint for some time that NCBs are struggling to buy as many assets as the program dictates, this is one development that could yet help steady the EUR’s decline.”

US Dollar Strength Subsiding

The other side of the euro dollar equation is of course the USD, which is in turn driven by the US Fed and their decision making regards to the path of US interest rates.

Communications from the Fed in March shows lower economic growth forecasts and suspicions that core inflation will now not get back up to target until 2017.

This affords the Bank the chance to keep interest rates lift-off delayed.

Add to this a lower full employment definition, now seen between 5% and 5.2%.

All this gives, “support to the idea the Fed could really take its time, despite clearing the decks to hike whenever it wishes. We had thought this dynamic would take hold a little later this year and potentially – Greece and ECB QE aside – we might now see EUR/USD trade sideways for a bit,” say NAB.

Interest Rate Differentials Say No Parity Likely

The difference between yield in the US and the Eurozone will subsequently determine currency flows and currency exchange levels.

Analysts have taken a look at rate differentials between the US and Europe to help explain and guide EUR/USD’s decline; they note the relationship here has not always been reliable.

The recent pullback in US yields and rate guidance offered by the Fed in its ‘dot’ point median estimates of the mid-rate Fed funds at the end of 2015 and 2016, “suggests a US-German 10-year spread not dramatically different from the current 175bps,” say NAB.

Similarly, it is argued that a case for something closer to 200bps (190bps the recent high) or maybe as low as 150bps can be made.

“This gives us a range for EUR/USD of somewhere between 1.03 and 1.13 – still not below parity. Overall then we’re not ruling out a move down through parity on a Grexit, but think that would be relatively short-lived,” say NAB.

So on balance, the views held in this article suggests that the one-way ticket lower for the euro dollar rate is not guaranteed as consolidations and recovery could now increasingly undermine the negative scenario.

And while losses will ultimately be seen, the 1:1 exchange rate is not as guaranteed as many analysts and journalists out there would like us to believe.