The Aussie dollar is starting to move towards parity with the US$. Usually when a currency rises, it is because the domestic market is strong and economic growth causes inflation, which pushes up interest rates. The higher interest rates can attract forex traders and investors seeking a better return on investment.
Weaker economy, stronger currency
Yet a weak US$ is creating a stronger Aussie and interest rates are kept low by the RBA not wanting to suffocate a slowly growing economy with higher interest rates. Some are calling for higher interest rates to stave off an uncontrolled property boom, but the rest of the economy is not so booming itself.
Domestic consumer spending is key
Chinese commodities demand has normalised after a surge in 2010-2012, so we can't expect mining to do the heavy lifting. It has to be the domestic consumer market now. This is going to keep interest rates lower for longer until the economy expands to a certain point. Even the jobs market is a little shaky despite a slight tick down in unemployment last month.
How to benefit from this situation
Businesses can expand stores and facilities easier with low interest rates. With a higher Aussie, the importers stand to benefit from lower imported goods costs. Retailers of household goods and personal items like JB Hi-Fi Limited (ASX: JBH), Harvey Norman Holdings Limited (ASX: HVN) and Super Retail Group Limited (ASX: SUL) could gain from this scenario.
Fashion retailers who import clothing also get a tick up in potential earnings, so Premier Investments Limited (ASX: PMV) with its number of brand names like Just Jeans, Portmans, Peter Alexander and JayJays could possibly add to its strong first-half results.
With more money in customers' pockets and a strong Aussie giving more purchasing power overseas, Flight Centre Travel Group Ltd (ASX: FLT) could keep advancing on higher earnings. Webjet Limited (ASX: WEB) and Wotif.com Holdings Limited (ASX: WTF) could see more travel reservations business as well.
Foolish takeaway
Sometimes it is the investment opportunities that are already in front of us that can give us decent returns. You may not need to speculate in lesser known companies with spotty earnings histories to achieve your financial goals.
