Reserve Bank governor Glenn Stevens believes the Australian dollar is clearly overvalued "and not just by a few cents". At the end of 2013, Stevens said he would prefer to see the dollar closer to US85¢ than US95¢. If you agree with Stevens and believe the Australian dollar is overvalued, how can you profit?
I believe the best way to play it is to buy Australian companies with significant offshore earnings, as opposed to directly trading the Australian dollar, as accurately forecasting exchange rates is notoriously difficult.
Australian investors can benefit from a falling Australian dollar by looking at ASX companies that earn a large portion of their revenue offshore, as Australian earnings increase once offshore earnings are converted into Australian dollars.
These companies include global healthcare giants CSL Limited (ASX: CSL) and Cochlear Limited (ASX: COH). CSL currently earns approximately 42% of its revenue in North America and 30% in Europe, while Cochlear earns 40% of revenue in North America and 45% in the EMEA region.
Australian-listed mining companies will also benefit as commodity prices, such as iron ore and petroleum costs, are priced in U.S. dollars. BHP Billiton Limited (ASX: BHP) has estimated that each one cent change in the AUD/USD exchange rate has a $100 million impact on net profits.
Consumer electronics retailer JB Hi-Fi Limited (ASX: JBH) is also set to benefit as Australian consumers pay more for online purchases from overseas and therefore purchase more goods domestically.
By investing in these companies, Foolish investors can gain through exposure to the growing U.S. economy and falling Australian dollar without taking on direct exchange rate risk.
