The Australian dollar (AUD) has finally fallen below the Reserve Bank of Australia's targeted level of US75 cents with further falls appearing somewhat likely.
The local currency traded above parity with the US greenback as recently as May 2013 and has fallen gradually since, yet it has stubbornly remained above the Reserve Bank's target level. Indeed, the bank has cut interest rates and utilised 'jawboning' tactics to force it lower with a weaker currency seen as "necessary" to help rebalance the economy.
Last week, it fell below US75 cents for the first time in six years amidst a number of global economic concerns, including Greece's debt situation and China's stock market massacre. At the same time, the local currency was also weighed down by crashing commodity prices with the AUD currently fetching just US74.23 cents. It hit a low of US73.73 cents last week, according to Yahoo! Finance.
Indeed, a weaker Australian dollar is fantastic for investors with their funds invested in international equity markets (especially the US markets), while it is also great for investors exposed to locally listed companies which generate a significant portion of their earnings overseas.
As an example, Westfield Corp Ltd (ASX: WFD) is heavily exposed to the US and UK economies with 100% of its assets located internationally. As Westfield Corp repatriates its earnings back to Australia, its reported earnings are positively impacted which is a huge bonus for local investors.
Other companies such as Computershare Limited (ASX: CPU), Amcor Limited (ASX: AMC) and ResMed Inc. (CHESS) (ASX: RMD) should benefit in similar ways.
More gains to come
According to figures provided by Ozforex Group Ltd (ASX: OFX), the AUD has averaged US76.62 cents since 1990 so is now sitting well below its historical average.
That statistic might deter some investors from trying to profit from a weaker dollar based on the assumption that all of the gains have already been recognised. Personally, I don't believe that to be the case and nor do Morgan Stanley or the global currency team from UBS Wealth Management.
According to the Fairfax press, UBS is forecasting a fall to US70 cents by the end of this year while Morgan Stanley believes the dollar will hit just US62 cents in 2016. To begin with, Australia is a commodity economy meaning that further weakness in China and commodity markets should be reflected in the currency as well. At the same time, the United States is edging closer to increasing its own interest rates which would act to strengthen its currency against our own.
Indeed, forecasting currency movements with any accuracy is practically impossible to do but there are certainly strong signs that suggest our currency has further to fall from today's level. As a result of the heavy selloff in recent months, some of Australia's best stocks have become somewhat cheaper (including those mentioned above) meaning that investors can position their portfolios to benefit from this trend.
