The Australian dollar was trading just higher than US 76 cents on Tuesday night at its lowest level in six years. While the threat of an interest rate hike in the United States is on the forefront of foreign exchange traders' minds, local conditions are also weighing the dollar down.
National Australia Bank Ltd.'s latest survey showed that business confidence was at its lowest level since September 2013 as a result of political and economic uncertainty. While the result prompted NAB's chief economist to suggest the unemployment rate will top 6.7% this year, it also coincided with the latest weekly ANZ-Roy Morgan consumer confidence index which showed a slump in sentiment in the week ending 8 March.
These two results provide further indication that growth will remain somewhat subdued in Australia, which will likely lead to another cut in interest rates in the near future. In search of higher yields, foreign investors are selling their Australian dollars and buying US dollars, where interest rates are expected to rise in the near future.
As it stands, the Australian dollar is sitting close to the Reserve Bank's target price of US75 cents, but economists believe it could fall significantly lower. In fact, according to the Fairfax press, Credit Suisse's head of fixed income and economic research, Ric Deverall, believes that the dollar could fall below US60 cents in the next two or three years.
Here's how you can profit
In order to profit from the weaker Australian dollar, you need to gain exposure to companies that generate a significant portion of their earnings overseas.
Westfield Corp Ltd (ASX: WFD) and ResMed Inc. (CHESS) (ASX: RMD) are great examples. Westfield Corp owns a portfolio of shopping centres spread throughout the US and the UK and will continue to benefit from their resurging economies. Meanwhile, ResMed, which develops products for the treatment of sleep apnea, sells most of its products in the Americas and Europe.
Packaging company Amcor Limited (ASX: AMC), investment bank Macquarie Group Ltd (ASX: MQG) and biopharmaceutical giant CSL Limited (ASX: CSL) are also poised to benefit.
