Late last year, Reserve Bank of Australia governor Glenn Stevens made it clear that he wanted the Australian dollar to fall to levels not seen since the last decade, and analysts are now suggesting he could have his way within months.
In order to rebalance the Australian economy and provide some much needed relief for local exporters, Mr Stevens said the Australian dollar should be trading at around US75 cents. As it stands, it's trading for US78.73 cents, down from a high of nearly US95 cents recorded in July last year. The currency has been driven down by a number of factors, including a strengthening U.S. greenback, tumbling commodity prices and international rate cuts.
At its current level, the Australian dollar is trading at its lowest price in more than five-and-a-half years and currency analysts are saying we should get used to it. Indeed, we could see it fall heavily in the coming weeks, particularly if the Reserve Bank cuts interest rates even further.
Last week, analysts at Australia and New Zealand Banking Group (ASX: ANZ) said the dollar could drop to around US76 cents by the middle of the year. While that's bad news for Australian travellers wanting to head overseas anytime soon, it's great news for our exporters and companies which generate a large portion of their earnings overseas – particularly in the United States.
Here's how you can profit
While investors can buy international equities (such as those listed on the Dow Jones or NASDAQ indices) to try and profit from the tumbling Australian dollar, many investors would prefer to keep their investments local.
One other great way to profit is to buy Australian-listed companies with heavy international exposure. As they repatriate their earnings back to Australia, the lower exchange rate boosts their overall earnings.
A perfect example is ResMed Inc. (CHESS) (ASX: RMD), a respiratory device maker, which generates more than half of its earnings from North and Latin America. It recently recorded yet another strong quarterly result driven largely by new products and growing markets. Investors could also look towards companies such as Westfield Corp Ltd (ASX: WFD), Computershare Limited (ASX: CPU) and Amcor Limited (ASX: AMC) for strong international exposure.
Regardless of whether or not the Reserve Bank elects to cut interest rates this year, the Australian dollar is likely to drop further in the medium term and investors who position their portfolios accordingly should profit handsomely. Another great way to profit from low interest rates is by buying some of Australia's best dividend stocks.
