Here’s why the Australian dollar is not going back to parity with the USD

The Australian dollar has cooled down since it soared above US75 cents overnight, although it’s still trading at an uncomfortable level of US74.66 cents, according to Yahoo! Finance.

The local currency has been targeted by the Reserve Bank of Australia in the past with the intention to weaken it against a basket of other currencies, including the US greenback. For a while it looked as though the RBA had succeeded, forcing it as low as US68.28 cents in January, but it has since rebounded nearly 10% to today’s price.

That contrasts to the US65 cent level targeted by the bank’s deputy Governor Philip Lowe, who is widely expected to replace the current governor, Glenn Stevens, when he retires later this year.

Although there are certain benefits to having a strong currency, a weaker dollar is what is needed currently in order to make our exports more competitive in the global market. As our products become more attractively priced to international buyers, more countries will buy from us and thus, help our economy to grow and alleviate some of the pressure on the federal deficit.

The trouble is, a number of other countries around the world are currently trying to achieve the same thing. The Bank of Japan, for instance, has joined other countries in cutting its cash rate into negative territory, leaving the Reserve Bank of Australia in a position where it may be forced to cut our interest rates even lower, as well.

That could certainly benefit investors in Australian shares that offer high-yielding fully franked dividends, including the likes of Telstra Corporation Ltd (ASX: TLS) and perhaps even Commonwealth Bank of Australia (ASX: CBA).

While some economists think the dollar will climb even further, (with one even suggesting it will head back to parity with the US greenback), it seems likely that the Australian dollar will still fall in the long run. This is partially due to the fact that the RBA still has the capacity to cut interest rates further than other countries, while a wind-down of the mining boom could also impact our domestic growth.

Thankfully, there are ways to book a potential profit from this trend. Of course, the most direct way would be to buy US dollars or invest in US shares, but more Australians would likely find it more comfortable (and convenient) to simply buy shares of Australian-listed companies with overseas operations.

One company that springs to mind is Westfield Corp Ltd (ASX: WFD), the global shopping centre giant, which generates all of its earnings in the US and the UK. Cochlear Limited (ASX: COH) is another great example that could generate strong gains over the coming years as well.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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