The Reserve Bank of Australia could be forced to continue slashing interest rates in an effort to keep the Australian dollar down and the nation's exports competitive.
Central banks around the world are also cutting their interest rates in an effort to fight against low inflation and this is having a drastic effect on the foreign exchange market. With many nations having even moved their interest rates into negative territory, we are engaged in what has been referred to as a 'currency war' with each nation racing to the bottom.
As quoted by CNBC, Goldman Sachs President and COO Gary Cohn said: "The prevailing view is that the easy way to stimulate economic growth is to have a low currency."
The RBA cut Australia's cash rate by 25 basis points earlier in the month, taking it to a record low of just 2.25 per cent. While many analysts were surprised that the cut came so early, they are now anticipating at least two or even three more cuts over the course of 2015 as the RBA attempts to improve confidence, fight against rising unemployment and keep the Australian dollar (AUD) low. As it stands, the AUD is worth US 77.68 cents, compared to the RBA's target price of US 75 cents.
The fact that the economy needs so much stimulus isn't ideal, but there are many ways that investors can actually profit from the easing monetary policy. High-yield dividend stocks are already in high demand, this is evidenced by the enormous returns generated by companies such as Commonwealth Bank of Australia (ASX: CBA) and Telstra Corporation Ltd (ASX: TLS) in the last couple of months.
However, as the AUD weakens, Australian companies which generate a significant portion of their earnings overseas will also benefit. Westfield Corp Ltd (ASX: WFD), ResMed Inc. (CHESS) (ASX: RMD) and Amcor Limited (ASX: AMC) are all prime examples and each appear to be trading at reasonable prices today.