The Australian dollar has already slipped 6% against the US greenback this year, but it could still have a long way to go before bottoming out.
At the same time as demand for the Australian dollar is weakening due to expectations of further interest rate cuts (and a struggling local economy), the US dollar is strengthening at almost unprecedented levels based on expectations of an interest rate hike. As it stands, the local currency is worth US 76.31 cents, which is down from a 12-month high of US 95.06 cents.
Although that figure is strikingly close to the Reserve Bank of Australia's stated target of US 75 cents; there is a very real possibility that it will slide well below that level. According to the Fairfax press, investment manager BlackRock believes the currency will slip to just US 70 cents in the second half of this year, based on the assumption of further interest rate cuts and further falls in commodity prices.
Meanwhile, Credit Suisse's head of fixed income and economic research, Ric Deverall, has gone even further to predict the Australian dollar will buy less than US 60 cents in the next two or three years.
The fact is, there are strong signs of weakness in the local economy, especially when compared to that of the United States. Commodity prices are crashing; unemployment is rising; and consumer and business confidence levels are both low. All of these factors point to further interest rate cuts which will almost certainly push the dollar lower.
Westfield Corp Ltd (ASX: WFD), Computershare Limited (ASX: CPU), Macquarie Group Ltd (ASX: MQG) and Amcor Limited (ASX: AMC) are all examples of companies which would benefit should that scenario play out given their exposure to international markets. Notably, investors can also profit from the likelihood of further interest rate cuts by investing in high-yield dividend stocks!
