Dear investor, the Australian dollar (A$) (AUDUSD) is going down.
No ifs, buts or maybes.
It is going south, and it'll stay there for longer than many financial commentators would care to admit…
…and I'm not talking about a slight decline in the currency. I'm talking about a meaningful decline in the value of our dollar.
US60 cents is a given, according to some economists' predictions.
For example, AMP's Chief Economist, Shane Oliver, was reported as saying to Business Insider: "the $A is on its way in the $US 0.60."
But to be brutally honest, seeing a '5' in front of the exchange rate wouldn't surprise me either.
Take a moment, and just imagine what US60 cents in the dollar would mean for your travel plans, your business, or your investment returns.
Now, imagine it at US55 cents.
I hope it'll be a pleasant experience for you.
So how do you know the exchange rate is going to fall? I hear you ask.
One fact which gives me some confidence to say the Aussie dollar is headed lower can be found in Australia's current account deficit.
Basically, the current account is the difference between our nation's savings and investment. A current account deficit, which is what we've had for years, implies we're net borrowers from the rest of world.
While that's not always a bad thing, Australia's current account deficit of $19.03 billion for the June quarter was well above expectations and is the largest deficit since 2009.
Source: Tradingeconomics.com
Nothing new
In any of the past three years, you'd need only have looked at commodity prices – which is what Australia is known for – to figure out that the local economy was headed towards a rough patch.
Unfortunately, my guess is that it'll get worse before it gets better.
But! It will get better, eventually.
What's an investor to do?
If you're worried about the implications of a falling dollar, I suggest:
- Getting exposure to foreign markets by investing in local businesses with significant overseas exposure. Companies such as Cochlear Ltd (ASX: COH), Brambles Ltd (ASX: BXB) and ResMed Inc. (CHESS) (ASX: RMD) spring to mind.
- Buy an ASX-listed ETF (exchange traded fund), like ishares Global Consumer Staples (ASX: IXI).
- Get into a low-cost foreign index fund, such as Vanguard International Shares Fund.
- Buy foreign shares directly, by opening a brokage account.
