The Australian dollar has dropped 17%, since hitting highs of around US$1.10 in July 2011, and is currently trading around 89.5 US cents.
Since the beginning of this month, the Aussie has dropped from above US93 cents, and could be headed even lower. Chris Stott, CIO of Wilson Asset Management has told Livewire that he expects to see the Aussie dollar with a '7' in front of it within the next 12-18 months.
That could be good news for Australia's economy, driving up the value of our exports – much of which is US denominated commodities like iron ore and coal.
But it could also have a detrimental effect on our market. International investors who have bought into ASX-listed stocks could decide to cap their losses, selling down their holdings and take their capital out of Australia.
As they are mostly invested in our very large market capital stocks, who make up a majority of the market and the S&P / ASX 200 Index (index: ^AXJO) (ASX: XJO), a sell-out of big banks, miners and consumer discretionary stocks could see our market fall.
That would be fabulous news for value investors – it's getting harder and harder to find cheap quality stocks. Another way to play the falling dollar and benefit is to invest in companies with large offshore earnings, particularly in the US.
Mr Stott's pick is poker machine maker Aristocrat Leisure Limited (ASX: ALL). Aristocrat earns more than half its revenues and profit from the Americas. Steve Johnson from Forager Funds Management says nearly half his portfolio is positioned to capitalise on a fall in the Aussie dollar, with stocks such as RNY Property Trust (ASX: RNY), Mirvac Industrial Trust (ASX: MIX), Hansen Technologies Limited (ASX: HSN) and GBST Holdings Limited (ASX: GBT).
RNY and Mirvac hold US property as their primary business, while Hansen provides billing solutions to customers in the telecommunications and utilities sectors around the world. GBST provides software platforms for wealth administration, share trading and derivatives processing amongst others.
If you think you've missed the boat to invest offshore, imagine how you might feel if the Aussie falls into the 70's.
