The Australian dollar has soared against the US dollar, passing $1.05 overnight. Despite falling commodity prices, it appears that investors are trying to escape falling currencies such as the US dollar and the Euro. And with Australia having such high interest rates, compared to other western nations, the little Aussie battler appears very attractive. Even central banks have got in on the act – The Swiss National Bank has included the AUD in its foreign exchange reserves.
The Aussie dollar is also rising against most major currencies and is now buying 85.7 euro cents – up 11% since a year ago, and has risen 6.5% against the UK pound to 66.9 pence, since mid-May 2012.
For the Australian economy as a whole, a higher currency tends to act as a hand brake on the economy, reducing inflation, and is likely to keep interest rates lower. Companies looking to make foreign acquisitions or expand their overseas operations could be more active as they try to take advantage of the higher exchange rates.
For retailers, many of their products and raw materials are purchased overseas and they could see falling costs for their imports. Consumer electronics product costs should fall which would help JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Holdings Limited (ASX: HVN). The flip side is that consumers tend to purchase more online, so the traditional bricks-and-mortar stores could see the benefits of lower costs offset by lower sales. Harvey Norman should also see falling prices for consumer white goods and furniture, and given they are 'bulky' goods, tend to be purchased locally rather than online.
Woolworths Limited (ASX: WOW) and Coles – owned by Wesfarmers Limited (ASX: WES) could be beneficiaries as well, as products purchased from offshore suppliers should be cheaper. Although Wesfarmers' benefits may be offset by reduced income from its coal exports, which are priced in US dollars.
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Motley Fool writer/analyst Mike King owns shares in Woolworths and JB Hi-Fi. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
