Citi analysts say the Australian dollar could strengthen to $1.20 -- or beyond -- from today's $1.071. Futures markets currently price in a 1-in-5 chance of AUD/USD hitting 1.20, Citi says, and a 1-in-10 chance of a move to 1.25 during the latest cyclical moves.

"We think the probability of a move into this range is higher than market pricing suggests, so we favor taking advantage of spot dips and the decline in implied volatility to enter longs," they write in a note.

In the Aussie's favor is a structural shift in currency markets toward countries that show fiscal discipline, its links to Asian economies, heavy foreign investment in the mining sector and its still-high interest rates.

Data and news out of Australia bolstered its emerging status as a kind of Switzerland of the south. It posted a larger trade surplus, which came despite the continued strength of the Aussie dollar and reflected the ongoing demand for Australian commodities in such places as China.

Mining stocks led a recovery in the Australian share market Thursday after offshore equities markets rose on improved manufacturing data in China, Europe and the U.S., and talk of an imminent merger between Glencore and Xstrata resurfaced.

All this came as Prime Minister Gillard told Australians that the strong Aussie dollar was here to stay and that companies would just have to adapt or perish.

BNP on Thursday also called for the pair to gain, saying AUD/USD will reach 1.15 by year-end