Aussie dollar set to fall

Downward pressure continues to build

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published September 4, 2012 9:55 am AEST

Fancy an overseas holiday or an iPad or Kindle full of e-books? Now's probably the best time to do your overseas shopping or book that US trip.

The Australian dollar recently hit a six week low and is currently trading around 102.44 US cents – down from a mid-August high of close to 106 US cents.

The pressure on it to fall further has intensified, with our biggest export market, China, slowing. Iron ore and coal prices have fallen more than 30% in less than six months.

Locally, the housing industry is struggling, retailers are struggling and some media companies see no lift in the current bleak advertising market until 2015.

Because our dollar is closely linked to commodities prices (being our major export), usually the dollar will follow. But the Australian dollar has been stubborn and stayed high, while commodity prices fell. Much of the reason for that is with the rest of the world struggling with their own issues, Australia has been seen as a relative safe haven for capital. Even the Swiss central bank started buying Australian dollars.

As I see it, one of the main catalysts for the Australian dollar to fall further from here, are the actions by the European Central Bank and the US Federal Reserve. If the US decides to stimulate its economy, or Europe takes control of its debt issues, we could see the Australian dollar take a rapid dive – investors would likely have more confidence in Europe and the US, and we could see the Australian dollar deserted in favour of the Euro or US dollar.

Markets around the world appear to be expecting positive action to be taken by both regions, which means an Australian dollar trading above parity with the US dollar should not be taken for granted.

But while it does, investors and consumers have an opportunity to take advantage of the high dollar. If you plan on booking that overseas trip, now might be the best time to walk into a Flight Centre Limited (ASX: FLT) agent or get online to Webjet Limited's (ASX: WEB) site and book those overseas holidays.

Shopping at US and other online sites, such as Amazon might also be a good idea now. Investors might consider investing in US or European companies, as shares are cheap – both because of the high Australian dollar and the weak sentiment in those regions. Actions by the respective central banks could see those markets take off. It's also ideal protection should the Australian economy falter.

Investors could also consider an investment in one of the many ASX listed companies with the majority of their earnings offshore, such as CSL Limited (ASX: CSL) or News Corporation (ASX: NWS). If individual companies don't take your fancy, there are plenty of exchange traded funds on the ASX that can give you exposure to US or European markets.

The Foolish bottom line

Markets are expecting US and European Central Banks to take action to fix their relative issues. It those actions come about, it could be the pin that popped the Aussie's balloon, and we could see the dollar plummet. Now's the time to take advantage.

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Motley Fool writer/analyst Mike King owns shares in CSL and Flight Centre. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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