The Australian dollar has fallen since recently breaching the US 81 cent mark, and economists have had their say with some suggesting it's all downhill from here onwards.
The local unit had charged higher in response to the latest official Reserve Bank of Australia interest rate cut in a move exactly opposite to what the RBA was expecting.
Indeed, the RBA itself had thought further easing in monetary policy would push the local currency below its long-targeted US 75 cent level, but indications of no more interest rate cuts pushed it beyond US 81 cents. The dollar has eased since that time and is trading at a more respectable US 78.3 cents today, down from more than US 79 cents on Friday.
This has been bolstered by strong US inflation data and encouraging comments from the US Federal Reserve's chair, Janet Yellen, that it is still on track to increase interest rates at some point this year.
The prospect of higher yields there will attract investors away from the Australian market, thus forcing the dollar lower. But while the Reserve Bank is still striving for an exchange rate at US 75 cents, other economists believe it will fall well beyond that point, making now the time to buy stocks which enjoy a strong exposure to the US market.
That would include Westfield Corp Ltd (ASX: WFD), which is down more than 9% since mid-March, together with Computershare Limited (ASX: CPU) which is also down 8.6%. Amcor Limited (ASX: AMC) is another stock worth considering, although Westfield and Computershare are arguably the superior opportunities right now.
As highlighted by the Fairfax press, Westpac believes that the dollar will stay under US 80 cents, and trade around its current level through to next week. However, it is expecting to trade at around US 73 cents by year's end, implying a 6.8% decline from today's level.
If the iron ore price suddenly crashes again, you can expect it to fall considerably further than that. Indeed, further interest rate cuts from the Reserve Bank would also likely force the currency even lower. The minutes to its most recent Board meeting suggested the Bank is still open to further easing, despite earlier indications that suggested the door had closed.
