Macquarie’s economics team has lifted the forecast Australian to US dollar exchange rate by 15% to $US1.08 for 2012 and $1.09 for 2013.

“This now sees our AUD/USD rate estimate remaining above parity until 2016 and is consistent with the Macquarie Commodities’ team view of strong prices for both iron ore and coal – Australia’s two largest exports and drivers of Australia’s terms of trade – in the medium-term,” Macquarie said.

Macquarie attributed the Australian dollar’s strong performance to Australia’s AAA credit rating, high interest rates and heightened interest from other central banks, rather than rises in commodity prices as had previously been the case.

The long-term outlook for the dollar remains unchanged, with the currency expected to drop back to around 82c by 2018, but Macquarie now expects the exchange rate to trade close to $1.10 for an extended period of time.

Despite commodities failing to keep up with the Aussie dollar, Macquarie believes Chinese growth remains a powerful driver for prices over the coming years.

Macquarie reiterated its preference for the large diversified miners BHP Billiton and Rio Tinto, with both retaining outperform ratings.

Analysts dropped BHP’s target price to $A45.50 from $46.50 and lowered Rio’s target price from $94 for $91.

A large percentage of BHP and Rio’s revenue and profit is driven by their massive iron ore divisions and Macquarie remains optimistic on iron ore prices.

“Despite recent spot volatility, Macquarie remains confident in the prospect of a shelf in iron ore prices at plus $US140 per tonne over the next few years,” the note said.

Macquarie has forecast fines prices to average $156/t this year, while lump should average $178/t.

Pellets, which traditionally command a premium, should average $204/t this year.

“As such, we also continue to be drawn to our preferred pure iron ore exposures, Fortescue [Metals Group] and Atlas Iron,” Macquarie said.

Both have retained their outperform ratings, but Atlas’ target price has been dropped to $A3.70 from $3.80, while FMG’s has been lowered to $7.80 from $8.

Another iron ore pick, pellet producer Grange Resources, retained an outperform rating with a $1 price target.

In the coal space, the top pick is Aston Resources, with an unchanged outperform rating and a $10.05 price target, with Macquarie favouring its merger with Whitehaven Coal.

OZ Minerals is the standout copper stock, but its price target was slashed by 90c to $12.84.

Copper prices are expected to average $US3.75 per pound this year and $3.97/lb next year.

Of the gold miners, Macquarie preferred market giant Newcrest Mining, new producer Perseus Mining and new company Evolution Mining.

Newcrest’s target was cut to $A42 from $45, Perseus’ was dropped to $4 from $4.50 and Evolution’s was trimmed to $2.50 from $2.60.

Other gold plays weren’t so lucky.

Macquarie downgraded Ampella Mining to neutral from outperform and cut its price target from $1.90 to $1.70, and downgraded St Barbara from neutral to underperform and cut its target by 20% to $2.

Analysts expect the gold price to average $US1800 per ounce this year, before jumping to an average price of $2000/oz next year.

In the years following, gold is expected to gradually fall and average $1188/oz in 2016.

Base metals producer Independence Group and mineral sands miner Iluka Resources were other key picks, with outperform ratings and unchanged price targets of $A5 and $20 respectively.

Despite its community issues, Macquarie still favours rare earths play Lynas Corporation, though its price target was cut to $1.93 from $2.04.

This article first appeared in ILN's sister publication MiningNews.net.