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Australian dollar surges: Is it going higher?

Could the Australian dollar (A$) – US Dollar ($) (AUDUSD) exchange rate be set to rise?

Source: Google Finance

AUD – USD exchange rate over five years; source: Google Finance

In recent years, sharemarket analysts and investors alike have successfully played on the theme of a falling Australian dollar, which boosts foreign company earnings and increases local competitiveness.

But the local currency has been bouncing higher over the past three weeks thanks to help from the USA’s FOMC minutes, which shed more light on the Federal Reserve’s decision to keep US interest rates on hold in September.

The USA’s reluctance to raise rates is playing a meaningful part in keeping the Australian dollar buoyant, around its current level of US72.54 cents.

Nonetheless, despite the currency’s dramatic 17% fall against the greenback over the past year, some pundits are convinced the Australian dollar has further to fall. Many believe the commodity price slump will continue and the inevitable decision by the Fed to raise interest rates will put further downward pressure on the Aussie dollar.

Foolish Takeaway

While I believe the Australian dollar could fall further yet, I think the worst of the currency’s decline is over. Although falls in iron ore, copper, coal and other major exports have hurt our economy and are continuing to do so, it’s only a matter of time before the non-mining sector picks up the slack.

For example, a lower dollar is a boon for retailers like Harvey Norman Holdings Limited (ASX: HVN) and JB Hi-Fi Limited (ASX: JBH) because they can become more competitive with online rivals.

Moreover, the agricultural sector – like our largest miners – will benefit from a lower Australian dollar since it lowers their cost base compared to foreign rivals. And healthcare businesses exporting internationally will also welcome the lower dollar.

Further, foreign investment in property and business, as well as tourism, will be a big kicker for our financial sector, property owners, and developers.

So while the Australian dollar was clearly overvalued above US80 cents, in my opinion, the falls we experience from here may not be so dramatic as what we’ve seen in recent years.

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Motley Fool contributor Owen Raskiewicz has no position in any stocks mentioned.

Owen welcomes your feedback on Google plus (see below), LinkedIn or you can follow him on Twitter @ASXinvest.

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.