The Australian Dollar (A$) (AUD) is trading lower again today, although it hasn't quite reached the low levels it struck last week.
On the share market, the QBE Insurance Group Ltd (ASX: QBE) share price has benefited, rising 1.3%, as has the Altium Limited (ASX: ALU) share price which has gained 3.3% at the time of writing.
Although those share price gains mightn't be directly attributable to the falling Australian dollar, the AUD's weakness could at least be a contributing factor.
Those companies, along with many others such as Cochlear Limited (ASX: COH) and Westfield Corp Ltd (ASX: WFD) generate a good portion of their earnings in overseas markets. As a result, Australian investors actually benefit from a weaker 'Aussie' dollar because their overseas earnings become more valuable when converted into the Australian currency.
What has happened?
Recently, the AUD has spent much of its time trading above US76 cents. However, it began a sharp decline last week as a result of weaker-than-anticipated Australian economic data together with speculation that the US central bank – the Federal Reserve – will lift interest rates in that country later this month.
The weaker than anticipated Australian economic data would have acted to weaken the Australian dollar, while expectations of higher interest rates in the United States would help to boost the value of the US dollar.
The AUD was purchasing around US 74.4 cents last week. Although it has since rebounded, it is still trading for just US 75.72 cents, with the prospect of further weakness to come.
Is a lower AUD a good thing?
A weaker Australian dollar is good for the economy, in that it helps to boost our exports as well as tourism. It also helps many companies that generate a bulk of their earnings overseas, as mentioned previously.
But a weaker AUD (or a stronger USD) won't help everyone. As an example, because gold is priced in US dollar, gold miners such as St Barbara Ltd (ASX: SBM) and Evolution Mining Ltd (ASX: EVN) will likely suffer from a stronger US dollar. After all, if the US dollar is stronger, that makes gold more expensive to purchase for international buyers, thus impacting demand.
Foolish Takeaway
Unfortunately, it is virtually impossible to predict currency movements with any consistency. Many would argue that the AUD should be trading lower than what it is, while others would guess that the Aussie dollar will strengthen before it declines any further.
That said, my best guess is that if US interest rates do continue to rise in 2017, the Australian dollar will have further to fall. Investors may want to take a look at some ASX-listed businesses (including those highlighted above) that could benefit if my guess proves correct.
