Overseas holidays are tipped to get dearer by Christmas with the Australian dollar now trading below 76 US cents for the first time in two years.
The domestic currency shed one US cent on Monday morning as financial markets contemplated a bigger than usual interest rate cut on Tuesday from the Reserve Bank of Australia (RBA).
The Australian dollar has shed 23 per cent since reaching a 25-year high of 98.49 US cents in mid-July, and has lost 8.4 per cent of its value in the past week alone.
The Australian dollar sunk to 75.85 US cents at 1125 AEDT, its lowest level since October 2006 and its weakest point since the onset of the global credit crunch.
Against the Japanese yen, the Australian dollar dropped below the key 80 yen level on Monday morning for the first time since January 2005.
CommSec economist Savanth Sebastian said the Australian dollar was likely to struggle in the near-term, which would make holidays to the United States in particular more expensive by year end.
"Any travel to the US will become more expensive," he said.
"It's likely overseas holidays will become more expensive: it's great news for the tourism industry in Australia.
"Over the last year, fewer people looked at Australia for a holiday destination from overseas."
A majority of economists are expecting the Reserve Bank of Australia (RBA) to cut interest rates by 50 basis points, for the first time in seven years.
The Australian dollar's latest low reading is even worse than the 76.76 US cent level touched in August 2007 in the early days of the subprime crisis.
Mr Sebastian said the Australian dollar was likely to recover to 78 US cents by December, but then fall to 71 US cents by September 2009.
With the US economy expected to recover, the Australian dollar was tipped to weaken against the US dollar, but firm against the euro.
On the bright side, Mr Sebastian said a Canadian holiday would become cheaper in the near-term as the Canadian dollar weakened against the US currency.
Bank of New Zealand currency strategist Danica Hampton said early on Monday the Australian dollar was in danger of falling to 76 US cents on Monday as financial markets relished the prospect of a 50 basis point rate cut.
"The risk is to the downside," she said from Wellington on Monday morning.
Futures markets have fully priced in a cut to the official cash rate of seven per cent, with a 50 basis point move rated as a 96 per cent chance.
RBC Capital Markets senior economist Su-Lin Ong said official interest rates would fall to 5.25 per cent by late 2009 as the RBA worried about a global economic slowdown.
"At the moment, the economy is clearly moderating and it is doing so against a very tenuous global backdrop," she said.
"That argues for rates to be lower. There is scope for rates to move over the next 12 to 18 months."
All 19 economists surveyed by AAP last week were forecasting a rate cut, with 11 of them factoring in a 50 basis point move.
A half a percentage point rate cut would be the first 50 basis point easing since April 2001, as the world economy slowed after the tech wreck.
The RBA board is due to meet on Tuesday morning, with the outcome to be released at 1430 AEDT.
The political passage of the US government's $US700 billion ($A908.21 billion) plan to buy toxic mortgage assets, over the weekend, failed to allay financial market fears about a global economic slowdown, with the key Dow Jones Industrial Average dropping by 1.5 per cent on Friday night.