The Australian dollar has fallen to its lowest level in six years following the release of unexpectedly strong US employment figures. While the U.S. dollar strengthened against most currencies, the Australian dollar fell to just US76.85 cents, a price not seen since May 2009.
The U.S. jobs figures showed that 295,000 jobs were created in February – compared to the 235,000 the market had been expecting – while the unemployment rate also fell to 5.5 per cent from 5.7 per cent. Of course, this data reflects positively on the economy as a whole and increases the likelihood of an interest rate hike in the near future.
In contrast, the Reserve Bank of Australia (RBA) looks set to slash interest rates further over the next 12 months. Some analysts have even indicated local rates could fall to 1.75 per cent in 2015.
If U.S. interest rates rise and Australian rates slide, the Australian dollar could fall further than the RBA's US75 cent target. In fact, according to the Fairfax press, Ric Deverall, Credit Suisse's head of fixed income and economic research, believes that the Australian dollar could fall below US60 cents in the next two or three years.
While that comes as bad news for those hoping to travel overseas anytime soon, it's excellent for companies which generate a significant portion of their earnings overseas. As an example, Westfield Corp Ltd (ASX: WFD) and ResMed Inc. (CHESS) (ASX: RMD) both report their earnings in US dollars, making a weaker Australian dollar favourable for local investors. Other companies like Amcor Limited (ASX: AMC) and QBE Insurance Group Ltd (ASX: QBE) also stand to benefit.
