As we covered recently, the Aussie dollar, our national currency, has been on fire over the past month or so, and is currently trading at a 2-year high.
Our Australian dollar is currently buying 75.18 US cents at the time of writing, but was buying as much as 75.72 US cents late last week.
Last week also saw the first time that the Aussie dollar has traded above 75 US cents since June 2018.
So with the Aussie riding high (and the greenback rising low), many ASX investors might be thinking that now is the time to buy US-listed shares. Since US shares are obviously traded in US dollars, a higher Aussie dollar means that these shares become relatively cheaper for us Australians to buy, since we first have to swap our dollars for greenbacks before trading.
As a hypothetical example, let's assume that Apple Inc (NASDAQ: AAPL) shares are trading at US$100 each. If our dollar is at parity with the US, it will (of course) cost an Australian an even $100 to buy that share. But if our dollar is at 50 US cents (like it was getting close to back in March), that same US$100 share would cost an Aussie $200.
Ok, so it's obvious that buying US shares today, when the Aussie dollar is at a 2-year high, presents a better opportunity to do so than at any time in the past 2 years (especially over the March lows). Purely from a currency perspective that is.
So does that mean you should join the Aussie investors buying Apple, Tesla Inc (NASDAQ: TSLA), AirBnB Inc (NASDAQ: ABNB) and the other US shares popular at the moment?
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US shares remain high
Not necessarily. Remember, US shares are arguably far from cheap today. US indexes like the Dow Jones Industrial Average (INDEXDJX: .DJI), and the S&P 500 Index (INDEXSP: .INX) are pretty much at record highs. Apple shares are up 62% year to date, and up 112% since the lows of March. Tesla shares are up more than 600% year to date.
Getting a better deal on a currency conversion does not mitigate these gains. Remember, currency fluctuations between the Aussie and the greenback only give 'one-off' advantages or disadvantages. Those gains or losses don't compound over time the way share price gains do. Thus, it's probably better just to focus on the price you are paying for a company, rather than the exchange rate that is prevailing at any given time.
Now, if the exchange rate of our dollar is at a historically unsustainable level (say either 40 or 120 US cents), then it might make sense to invest based on that level. But the Aussie is not at any kind of 'unprecedented high' at the current rate, even though it hasn't touched this level for a couple of years. In fact, looking at data from Macrotrends, it appears to be pretty much at its long-term average right now.
Thus, it probably isn't a good idea to buy US shares on a pure currency basis today.
