The Australian dollar has once again fallen below the US 76 cent mark on expectations of an official Reserve Bank of Australia interest rate cut this afternoon.
As at 9:19am (Sydney time), $1 was buying US 75.94 cents, down from US 76.88 cents on Friday, and just 0.8% above a six-year low of US 75.34 cents.
When the Reserve Bank meets this afternoon, the Board is expected to slash interest rates by another 25 basis points, taking them to a record low of just 2 per cent. Lower interest rates aren't attractive for international investors who typically sell the Australian dollar to invest their capital in higher-yield opportunities – hence the selloff in the local currency overnight.
While the RBA has long targeted US 75 cents, there are signs the dollar could fall significantly lower than that. Many analysts expect several interest rate cuts over the next couple of years while, at the same time, the US Federal Reserve is expected to start increasing interest rates at some point this year.
As an example, earlier in the year, BlackRock Investments said that it expected the dollar to drop below US 70 cents in the second half of this year based on the assumption of further interest rate cuts and falls in commodity prices (the latter has certainly come to fruition with iron ore now fetching just US$47 a tonne).
Meanwhile, Bell Potter analyst Charlie Aitken revised his medium-term outlook for the currency to just US68 cents in February, citing it as "critical" to allow Australian exports to become more competitive on a global scale, as quoted by the Fairfax press.
Here's how you can profit
Based on those forecasts alone, the Australian dollar could slip another 8% to 10% which could provide a significant earnings boost for local companies with strong overseas exposure.
Companies such as Westfield Corp Ltd (ASX: WFD), Amcor Limited (ASX: AMC) and CSL Limited (ASX: CSL) derive a significant portion of their earnings overseas, meaning that a lower exchange rate actually boosts the profit they report in Australian dollar terms. All of these companies appear to be reasonable buys today and could help boost your own returns in the coming years.
