Westpac says it expects the Australian dollar to overtake the greenback by the end of the year after the local currency hit a record of 99.2 US cents overnight.

The dollar has since pulled back from its overnight high and at 11:50am AEDT was buying 98.05 US cents.

Westpac says the weakening US dollar, coupled with the prospect of a quantitative easing program by the US Federal Reserve - effectively printing money - will see the Australian dollar's appeal rise.

This is expected to push the local currency beyond parity against the greenback by the end of the year.

Westpac chief economist Bill Evans says the bank has lifted its Australian dollar forecasts.

"On today's reading of around USD $0.98 or so, the AUD only needs to keep pace with a fall in the USD of around 4 per cent for it to register USD $1.02," he said.

"That looks extremely likely over the next two months or so."

In light of the strengthening Aussie, Mr Evans says the Reserve Bank is likely to increase its official cash rate in November and will increase interest rates by 75 basis points over the next few months.

This means the official cash rate will reach 5.25 per cent by the second half of 2011.

"Over the course of the next nine months we expect the Reserve Bank will raise the overnight cash rate by 75 basis points," Mr Evans said in a statement.

"The Australian dollar will stand out as one of the few liquid, floating currencies where the central bank is not printing money - indeed it is tightening policy."