The stockmarket was awash with fresh optimism that the dollar may finally be on a sustained decline as it plays catch-up to the fall in interest rates and commodity prices, reversing a major earnings headwind several sectors have faced for three years.

Ahead of today's expected $15 billion budget deficit -- attributable in part to the high dollar -- traders yesterday further sold down the currency to US99.66c after it hit a near 12-month low of 99.61c at the weekend. In late trade, it was hovering around parity with the greenback.

The dollar's decline, as the US dollar strengthens on bets the Federal Reserve may wind back $US85bn a month of bond-buying earlier than expected, drove shares with offshore earnings and defensive qualities higher.

QBE registered one of the biggest gains, jumping more than 3.4 per cent in a rally that also included News Corporation, CSL, Sonic Healthcare, Computershare, Amcor, Brambles, Cochlear, Treasury Wine Estates and Aristocrat Leisure.

"If we average more like $US1 or high US90c this year, it's going to add to earnings for those offshore earners, so essentially it will extend the rally in those companies that have already benefited from the currency headwind dissipating," said Platypus Asset Management chief investment officer Don Williams.

"It was inevitable it would crack and you've just seen the start of a new trend, so instead of sideways I think we are going to drift down relatively consistently over the next two to three years.

"If the old range used to be US50c to US90c and the average was around US65c, maybe the average now is US75c to US85c."

While miners enjoyed a boost as commodities are priced in US dollars, the majors BHP Billiton and Rio Tinto were sold off, which traders attributed to the "sell Australia" trade that occurs when the dollar follows commodity prices and interest rates down.

"The Australian dollar is falling because investors have rightly become more pessimistic on the plight of commodities, rates, domestic growth and a potential fiscal deficit," said Nomura head of research sales Ben Shakespeare.

"I would not be buying the resource sector just because the dollar is falling."

Industrial output numbers released in China yesterday indicated a rise of 9.3 per cent last month, an improvement on an increase of 8.9 per cent in March but still slower than a median forecast of 9.5 per cent growth in a poll of nine economists.

Deutsche Bank strategist Tim Baker said the market was excited about the prospect of a lower dollar, with several companies doing it tough.

Incitec Pivot yesterday posted a 23 per cent slide in first-half profit due to weaker earnings from its fertiliser businesses, following warnings last week from Boral and Coca-Cola Amatil that the dollar was eating into profits.

Goldman Sachs yesterday warned that if the dollar remained around parity the hit to the nominal economy could strip $145bn from government revenue from now until 2015-16. The Reserve Bank last week indicated an increasing aim to lower the dollar, leading economists to bet the cash rate might be headed below the 53-year low of 2.75 per cent as the central bank is forced to join the so-called global currency war to boost domestic economies.

Charlie Lancaster, deputy head of equities at Perpetual, which manages about $26bn, said the RBA's comments were significant and disputed the idea the US Fed would soon exit its money-printing program. He said the dollar was playing "catch-up" to the fall in commodities and that the market may have underestimated the impact of the peak in mining investment. While Perpetual does not manage its portfolio based on currency forecasts, Mr Lancaster said "quite a few" of the stocks he held had offshore earnings because of his belief some foreign markets in the future would do better than the domestic market.

A lower currency may spark a rise in takeovers as foreign raiders opportunistically strike.

"This has happened a few times before, where it's dipped down to around the parity level and everyone's got excited it's going to go to US90c but, what do you know, it goes back up to $US1.05," Mr Lancaster said.

"That said, I think the RBA's comments are a little different this time," Mr Lancaster added. "Rates are a lot lower so the differential in rates is becoming a lot less than it used to be and I think Australia seems -- with the currency where it is -- unsustainably non-competitive. So in my view something has to give."

IG Markets said the budget could be the next "bearish catalyst" for the dollar, which was looking "vulnerable" against a host of G10 currencies, with downside probably limited at US98.60c. A good US retail sales report overnight could put further pressure on the dollar as traders buy the US dollar.

Stockland chief Mark Steinert said the developer would benefit from an improvement in tourism from a lower dollar due to its large landholdings on the Sunshine Coast and Gold Coast.

In the US, there is increasing talk of a steady economic recovery. In the latest Wall Street Journal survey of economists, forecasters said they expected chief executives to add about 180,000 jobs a month over the next year, the same pace as the past two years. The Journal said the survey indicated that while overall economic growth had slowed from the first three months of the year it was predicted to quickly rebound.

For the full year, economists expect 2.4 per cent growth. "The economy is in vastly better shape than it was a year ago, two years ago, three years ago," Allen Sinai of Decision Economics, told The Wall Street Journal.

He said the major pillars of the economy -- households, banks and businesses -- were the most solid they had been in years. News the Federal Reserve might wind back quantitative easing was a key driver on the currency markets.