As we become accustomed to life above parity with the US dollar, it’s easy to forget that not so long ago the Aussie Dollar was range trading below US80 cents. The benefits of a high dollar are dubious. Despite slightly cheaper flat-screen TVs or a longer stay international holiday destinations, exporters - including manufacturers and domestic tourism operators - long for a return to previous levels.
The good news is the AUD isn’t likely to stay this high for long. The dollar still balances around strong resistance on a long-term scale and if the 80 cents level (or thereabouts) returns, holders of non-Australian assets will be the beneficiaries.
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A high Australian dollar means products from other markets such as clothes, furniture and electronics are cheaper for the Australian market. All things being equal, one would expect the retail sector to benefit from this. If only life was that easy...
One consequence of the higher Australian dollar is inflationary pressure. The RBA then responds by raising interest rates (already the highest in the developed world), which means less disposable income for mortgage holders.
An investment tactic worth considering is to invest in assets priced in US dollars. At the 80 cents level this was quite expensive as buying US stocks carried not just a future currency risk, but an exchange differential which sliced 20% off your purchase. But now, while currency risk still applies, the Australian dollar carries a lot more weight in the US. With stocks, options, futures and foreign exchange available on US markets through existing brokers and Exchange Traded Funds, there is a plethora of choices for international investors looking to take advantage of the weaker US dollar.
Investing in international markets is also an excellent form of diversification. With an optionsXpress account, you can easily access US markets as well as investing with a currency that has an exceptionally large downside risk working to your advantage.
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