The Australian Dollar (A$) ⇨ US Dollar ($) (AUDUSD) has rallied 6.5% in 2017, but if it falls you can bet that shares of Cochlear Limited (ASX: COH) and ResMed Inc. (CHESS) (ASX: RMD) will benefit.
AUD to USD in 2017
Why would the Australian Dollar (A$) fall?
I say 'good luck' to anyone trying to predict short-term movements in currencies, such as the AUD-USD pair. However, over time, there is one general rule of thumb that can help you identify the direction of a currency for the long-term.
Basically, the country expected to have the stronger economy will see its currency gain ground. We saw this occur in the aftermath of the Global Financial Crisis.
For example, in late 2008, the Australian dollar sunk below 65 cents as chaos engulfed financial markets. But when investors realised that the US economy was in much worse shape than the Australian economy our dollar rose to $1.10 against the greenback by 2011. It's been a slow decline since then, as the economic tables have turned.
The historical average of the Aussie dollar lies in the low-to-mid 70 cents range, so its current level around 76.5 cents probably isn't that far above normal. However, if the US economy keeps growing as it has done recently, the Aussie dollar could lose ground. That could be great news for investors in USD-exposed investments.
Obviously, if you have USD investments, a falling Australian dollar (aka a rising US dollar) is better for you.
Shares for a USD recovery
Contrary to what you may think, you needn't open an international share trading account to get USD currency exposure. You can buy Australian companies listed on the ASX that have overseas exposure via their operations.
For example, Cochlear and ResMed generate more of their sales revenue overseas than they do locally. ResMed is listed on both the ASX and the New York Stock Exchange.
Cochlear is the leading global implantable hearing aid developer. Its shares may be a little expensive at their current price but its long-term outlook appears bright.
The same could be said of ResMed. Shares in the $13 billion company have rallied 131% in five years. However, ResMed is a leader in developing devices for respiratory conditions like sleep apnoea, a condition which is only becoming more prevalent.
Both companies could be expected to benefit from weakness in the Australian dollar.
