The Australian dollar has plunged to its lowest level in more than four years after the Republican Party won the U.S. mid-term elections. After trading above US87 cents on Wednesday, the local unit fell as low as US85.64 cents on Thursday, reflecting a 1.8% decline overnight.
There are two likely reasons why the US dollar surged following the win. Firstly, the Republican Party is usually considered to be more business-friendly, which could indicate better times are ahead for the US economy. Second, the Republicans are largely opposed to the US Federal Reserve's stimulus policies which could suggest interest rates will rise sooner rather than later.
While the US dollar surged, the Australian dollar experienced further weakness as a result of tumbling commodity prices. Gold experienced a further slide in price while iron ore has sunk to a fresh five-year low, impacting the outlook for Australia's economic growth.
The tumbling Aussie dollar is fantastic news for Australian companies which generate significant portions of their earnings overseas – particularly in the US. That includes companies such as ResMed Inc. (CHESS) (ASX: RMD), QBE Insurance Group Ltd (ASX: QBE) and Westfield Corp Ltd (ASX: WFD).
Given that the Australian dollar is still trading at a historically high level, exposing your portfolio to these companies now could be a great way to improve your returns as the dollar drops. Another way investors can improve their profits is by investing in high-quality stocks that are trading at fantastic prices, and then holding them for the long run.
