The Australian dollar experienced a sharp fall overnight as the US greenback strengthened and China's sharemarket endured further weakness. According to Yahoo Finance, the local currency hit a fresh low of just US 73.69 cents while it is fetching US 73.77 cents as at the time of writing.
The AUD is considered to be a commodity currency which means that its value tends to fluctuate based on the movement of commodity prices. Iron ore, oil, copper and coal prices have all fallen recently which is largely a result of China's sharemarket meltdown, which investors fear could spill over into the real economy (thus impacting economic expansion and demand for commodities).
The local currency is also weaker in comparison to the US dollar after Janet Yellen, chair of the US Federal Reserve, reiterated that it was on track to hike interest rates before the end of the year. Higher US interest rates will attract more international investors to their market and away from our own, which will theoretically see the Australian dollar weaken.
A weaker Australian dollar is seen as a necessity in order to help rebalance the economy, and to make our exports and services more competitive with those provided by foreign corporations. Indeed, the Reserve Bank of Australia has long been targeting an exchange rate of US 75 cents and, based on commentary it made last week, still sees further depreciation as "both likely and necessary".
Although a weaker currency will make consumers' international shopping or travel plans somewhat more expensive, it is great news for investors holding companies that generate a large portion of their earnings overseas. That includes corporations such as Westfield Corp Ltd (ASX: WFD), Amcor Limited (ASX: AMC) and ResMed Inc. (CHESS) (ASX: RMD).
With some experts in the field forecasting a fall below US 70 cents in the very near future, each of those companies could be great pickups for investors wanting to profit from the trend.
