The Australian dollar will fall to 60 US cents this year and remain there next year, according to an updated forecast from a major economics research house.

Key points: Capital Economics is tipping a 16 per cent fall in the Australian dollar this year

Capital Economics is tipping a 16 per cent fall in the Australian dollar this year The forecaster predicts it will remain at 60 US cents through 2020

The forecaster predicts it will remain at 60 US cents through 2020 The lower dollar is expected to sustain the recent boom in tourism and education

That would be a 16 per cent fall from the current exchange rate and take the local currency to its lowest level since it briefly hit 60 US cents in October 2008, at the height of market panic during the global financial crisis.

At that time, the currency quickly rebounded to 90 US cents a year later and a peak of $US1.10 in July 2011, as Australia's economy rapidly rebounded from the financial crisis and interest rates went up here, while the US endured a severe recession, near-zero rates and a quantitative easing program that saw the Federal Reserve injecting trillions of dollars into the banking system.

However, this time around, Simona Gambarini from Capital Economics does not foresee a quick rebound from any fall as it is the Australian economy's turn to face severe challenges.

"We have changed our view of the future direction of interest rates there as we now think that the ongoing downturn in the housing market will deepen, causing GDP growth to fall below potential," she wrote in a note.

"In light of this, we think that interest rates are more likely to fall than to rise in 2019 and 2020."

Capital Economics is tipping that the Reserve Bank's official cash rate target will be 1 per cent by early next year, down from 1.5 per cent currently, as it battles to arrest the nation's worst housing downturn in decades and a slowing economy.

While Ms Gambarini also expects US interest rates to fall half a percentage point, from current levels of 2.25-2.5 per cent to 1.75-2 per cent, by the end of 2020, she does not think that will provide a significant boost to the Australian dollar.

She is predicting the Aussie will still be worth 60 US cents in 2020, down from a previous forecast of 70 US cents.

Other than a declining housing market and Australian rate cuts, Ms Gambarini said falling commodity prices would weigh on the local currency.

"We think that they will generally decline this year as China's economy, which is a major trading partner of Australia, slows further," the economist wrote.

"We expect especially large falls in the prices of iron ore and coal, which together account for 30 per cent of Australia's exports."

The other factor that will drag the currency lower is a general aversion to risky investments at the moment.

"We expect the US stock market to come under pressure again in 2019," Ms Gambarini forecast.

"On past form, when that has happened the Australian dollar has tended to fall."

Falling dollar 'to sustain tourism, education boom'

A weaker dollar is, without a doubt, disappointing news for Australians travelling overseas or buying imported consumer goods.

However, Capital Economics' senior economist Marcel Theliant, believes the Australian economy — which relies heavily on exports — will be better off overall.

"The decline in the dollar is unlikely to revive Australia's struggling manufacturing sector," he wrote in a recent forecast.

"But the weaker exchange rate has boosted demand for tourism and education exports, whose continued growth should mitigate diminishing resource exports.

"And if domestic demand slows as sharply this year as we anticipate, import growth should weaken. All told, we expect net exports to boost Australia's GDP growth by around 0.5 percentage points this year."

Capital Economics is currently towards the most pessimistic end of mainstream forecasts, with other analysts expecting the Australian dollar to remain around its current levels over the current year.

Annette Beacher from TD Securities is relatively upbeat about the prospects for Australian economic growth.

"Significant infrastructure spending and strong trade flows combined are contributing up to 2 percentage points to annual GDP growth," she told Reuters.

"The consumer only needs to add another 1 percentage point to achieve above-trend growth."

Above-average economic growth would most likely relieve the RBA of any need to cut interest rates, providing support to the dollar.