High-profile Bell Potter analyst Charlie Aitken has revised his medium-term Australian dollar price target down to US 68 cents citing falling interest rates as one of the key factors behind his forecast.
As reported by the Fairfax press, Aitken believes it is "absolutely critical" that the RBA target a lower cash rate and a lower dollar in order to become more competitive on a global scale. The Reserve Bank recently surprised the market with its first interest rate cut in 18 months and Aitken believes there could be at least two more to come which would take the nation's official cash rate below 2 per cent, dragging the Australian dollar down as a result.
Supporting Aitken's forecasts for the local currency is the expectation of an interest rate hike over in the US. The market is pricing in a 70 per cent chance of an interest rate hike before June, according to Bloomberg, which would attract investors away from the Australian market and into the United States' higher interest rate environment, thus strengthening the US greenback.
How you can profit
While a lower dollar will come as terrible news for Australians hoping to travel overseas as well as for net importing businesses, numerous companies will also cheer the dollar downwards. In addition to net exporters, companies that generate a large portion of their earnings overseas, including Westfield Corp Ltd (ASX: WFD) and ResMed Inc. (CHESS) (ASX: RMD), should also benefit handsomely.
Westfield Corp owns and operates a large portfolio of shopping malls in the US and the UK and should thus benefit from the countries' recovering economies. ResMed, meanwhile, only sells a small portion of its respiratory treatment products locally with the majority of sales coming from overseas. As the pair repatriate their earnings back to Australia, the low exchange rate helps boost their dividends in Australian dollar terms, giving shareholders a bigger profit.
With the Australian dollar set to fall further, investors who position their portfolios accordingly should profit handsomely. Another great way to profit from low interest rates is by buying some of Australia's best dividend stocks.
