Rejoice online shoppers! Soon you'll be getting cheaper products from overseas retailers, thanks to a strong Australian dollar.
Currently the Australian dollar is buying more than 92 US cents, and it could head higher if the Reserve Bank of Australia (RBA) raises the official cash rate sooner rather than later. And economists from Barclays Bank Australia reported, "surging house prices – growing at an unsustainable annualised rate of 20% — are likely to trigger early official rate hikes with Sydney acting as the RBA's 'canary in the coal mine."
Kieran Davies from Barclays says the RBA may even consider rules for the banks to cut lending to risky borrowers. Yesterday, Governor Glenn Stevens reminded property investors that house prices do go down as well as up. He also said he was confident that the Australian economy would grow off the back of a spurt in home construction.
Central banks generally raise rates to slow down growth, and lower rates to increase growth. Now it seems the RBA is forecasting faster than expected growth, which could lead to interest rates rising, and potentially prick the bubble in booming Australian house prices.
Sydney homes growing at an annualised rate of 20% and investors accounting for a record 54% of all new home loans written in NSW each month, suggest the capital city could force the RBA to raise rates sooner rather than later.
Rising interest rates are of course not ideal news for sharemarkets either, as they tend to make other asset classes such as cash and fixed income relatively more attractive, while also dampening company lending.
All of that could easily see our dollar trading at or above parity with the US dollar. That's great news for online shoppers, as well as retailers like David Jones Limited (ASX: DJS), Myer Holdings Limited (ASX: MYR) and JB Hi-Fi Limited (ASX: JBH), with the higher dollar giving them more pricing power.
Resource stock investors will need to be wary though. As commodity prices fall and the Aussie dollar rises, mineral producers like Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group (ASX: FMG) face a double-whammy hit to their revenues.
Foolish takeaway
While many commentators have suggested the Aussie dollar is way overvalued, we may well see higher interest rates and a higher dollar before the end of this year. Something to bear in mind when considering investing in Australian companies exporting products offshore, and those with significant offshore operations.
