Is the Australian dollar heading above 80 U.S. cents?

Credit: Benny

Despite the best efforts of the Reserve Bank to control the Australian dollar, it continues to defy the odds and climb higher. Last night the currency broke through 77 U.S. cents to make a new six-week high of 77.28 U.S. cents.

Yesterday’s rise is largely believed to be a result of a surge in the oil price after a surprise drop in US oil inventories and Saudi Arabia announcing that a number of nations are willing to join the OPEC output cuts.

Could the Australian dollar now be heading beyond 80 U.S. cents? According to a report in Business Insider it could be. Technical analysts think that should the Australian dollar keep edging higher and climb above its 2016 high then it will be onwards and upwards for the currency.

This would be a positive development for the likes of Reject Shop Ltd (ASX: TRS), JB Hi-Fi Limited (ASX: JBH), and Nick Scali Limited (ASX: NCK), as a stronger dollar would be likely to reduce import costs and increase gross margins.

Unfortunately though I am reasonably bearish on the Australian dollar’s prospects and expect that rate rises in the United States and a drop in the iron ore price will drag it the other way.

If iron ore prices do drop down to US$45 a tonne early next year as some are predicting, then I wouldn’t be at all surprised to see the Australian dollar fall as low as 70 U.S. cents.

This would be great news for companies such as Ardent Leisure Group (ASX: AAD), Cochlear Limited (ASX: COH), and Nanosonics Ltd. (ASX: NAN) which generate a significant amount of their revenue from their North American operations.

But one thing I’ve learnt this year is to expect the unexpected from central banks. Although a rate rise in the United States before the end of this year looks inevitable, it is far from a certainty. If rates do stay on hold then the Australian dollar could be free to climb higher, much to the dismay of a helpless Reserve Bank.

Other shares that you might be interested in investing in right now are here. I believe each has the potential to bolt higher in the next few months, so don't miss out on them today.

Why These 3 Blue Chip Shares Are Set to Soar for Smart Investors

Discover The Motley Fool's Top 3 blue chips for Smart Investors. These 3 'new breed' shares pay fully franked dividends AND offer the prospect of significant capital appreciation. Simply click here to gain access to this comprehensive FREE investment report.

No credit card required!

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.