Staying high: Aussie dollar rallies again

Can it make new highs?

a woman

It’s a great time for Australians looking to travel overseas or shop online at US stores, with the Australian dollar currently buying more than 104 US cents.

Overnight the dollar rallied three quarters of a cent to US 104.2 cents, despite worries about the resources industry, our major export, and a slowdown in our biggest trade partner, China.

It’s hard to believe the Aussie was trading at just US 64 cents back in March 2009. Since that time the currency has taken off and has rarely traded under parity against the US dollar since January 2011.

Any hope of a decline in the value of our currency appears to be futile as the growing status of the Aussie dollar as a safe-haven seems likely to provide support for the currency. Australia’s AAA credit rating, our relatively low level of country debt, relatively high interest rates and the high currency liquidity all add to our safe-haven status.

Lets face it, who wants to earn 0% or 1% on bonds investing in the US when you can get 5% or more investing in Australian term deposits? And it appears not many countries want to invest in Europe, given the current debt crisis that is raging in the region.

The fact that the Reserve Bank of Australia (RBA) has declined to cut official interest rates since June 2012 has added support for the Australian dollar. The RBA is also unlikely to intervene to lower the dollar, despite it remaining persistently high in the face of falling commodity prices.

The most likely direction appears to be upwards against the greenback, with signs that the US Federal Reserve may be closer than ever to further policy easing. With the economic recovery in the US showing little sign of growth, the Fed may want or feel the need to stimulate the US economy. That will have a weakening impact on the US dollar, and is generally viewed as good news for commodities, which tend to trade higher.

For Aussie companies that earn a significant proportion of their revenues overseas, that’s bad news, including Treasury Wine Estates Limited (ASX: TWE) and Aristocrat Leisure Limited (ASX: ALL). Those that can expect to benefit should the Aussie stay high or go higher include travel agent Webjet Limited (ASX: WEB) and airline Qantas Airways Limited (ASX: QAN), as consumers look to travel overseas and make the most of the high dollar.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. 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.

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