Profit from a falling dollar

The Australian dollar has fallen against a stronger U.S. dollar following the release of Federal Reserve minutes showing the Fed was determined to wind back its economic stimulus program. The local currency fell to 89c overnight.

Minutes from the U.S. Federal Reserve’s January policy meeting showed that the Fed planned to reduce their bond purchase program by $10 billion a month. OM Financial senior client adviser Stuart Ive said, “It does show that the Federal Reserve is determined to get back to some sort of normalisation of policy sooner rather than later”.

The Australian dollar has fallen from $1.06 a year ago to 89c today. Following the release of the latest Federal Reserve minutes, coupled with low interest rates, many analysts have predicted the Australian dollar will continue to fall over the remainder of the year.

Australian investors can benefit from the falling Australian dollar by looking at companies that earn a large portion of their revenue offshore, as Australian earnings increase once offshore earnings are converted into Australian dollars.

These companies include global healthcare giants CSL Limited (ASX: CSL) and Cochlear Limited (ASX: COH). CSL currently earns 42% of its revenue in North America and 30% in Europe, while Cochlear earns 40% of revenue in North America and 45% in the EMEA region.

Australian listed mining companies will also benefit as commodity prices, such as iron ore and petroleum costs, are priced in U.S. dollars. BHP Billiton (ASX: BHP) has estimated that each 1 cent change in the AUD/USD exchange rate has a $100 million impact on net profits.

Consumer electronic retailer JB Hi-Fi Limited (ASX: JBH) is also set to benefit as Australian consumers pay more for online purchases from overseas.

Foolish takeaway

Betting on the currency can be risky business. Investors who wish to gain from a lower Australian dollar may be better served by investing in companies with significant offshore earnings. By investing in these companies, Foolish investors can gain through exposure to the growing U.S. economy and falling Australian dollar without taking on direct exchange rate risk.

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Motley Fool contributor Bradley Murphy owns shares in CSL and Cochlear.

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