For the first time in more than six years, the Australian dollar has fallen below the US 70 cent mark as concerns regarding China's future growth prospects continue to grow.
At around 9:50am this morning, Sydney time, the local currency hit a low of just US 69.98 cents – a level not seen since March 2009. It's fallen roughly 25% over the last 12 months, according to figures provided by Yahoo! Finance, and could be set to fall even further over the coming weeks and months.
A falling AUD
The currency's weakness can mostly be attributed to China. The remarkable growth enjoyed by China in recent decades has been a boon for the Australian economy, mostly thanks to our geographic location and our resources-rich lands. But there are fears that the Asian nation's economy is now growing at a slower rate than is being let on by the authorities, resulting in tumbling commodity prices and, ultimately, less income for nation's such as Australia.
Canada is another resources-rich country which has officially entered a recession. It's been more than two decades since Australia last had to face a recession, but fears are growing that could soon come to an end. Indeed, we'll find out today whether the local economy grew in the June quarter, with fears mounting that we may have shrunk instead (a recession is two consecutive quarters of negative growth).
With that in mind, global investors are frantically taking their money out of the Australian market and piling it into the United States market, where the Federal Reserve is tipped to increase interest rates in the near future.
Further to go
Despite the currency's heavy decline over the last 12 months, those concerns mentioned above suggest that it could still have even further to fall. Indeed, some analysts believe it will fall to just US 60 cents in the near future, while others have suggested it's not unreasonable to expect a fall into the US 50s.
While that could put a halt to your international travel plans, there is a way to position your portfolio to benefit from the weaker currency. Although the most direct method may be to invest in US-listed companies, others would prefer to simply buy ASX-listed companies that generate a significant portion of their earnings from overseas markets.
A few companies that come to mind are ResMed Inc. (CHESS) (ASX: RMD) and Cochlear Limited (ASX: COH), together with Westfield Corp Ltd (ASX: WFD). Thanks to the market's recent dive, all three appear to be reasonable buys today.
