A lower Australian Dollar (A$) (AUDUSD) is a boon for ResMed Inc. (CHESS) (ASX: RMD) and Cochlear Limited (ASX: COH) shareholders.
Australian Dollar (AUD)
As can be seen in the chart above, the Australian dollar has been on a downwards trajectory over the past five years. The movement has helped exporters and investors with holdings overseas.
Is the Aussie dollar headed lower?
I think trading a currency short term is a high risk and unrewarding way to speculate on financial markets. However, if you are investing across markets for the long-term, I think ordinary investors can make money and lower their portfolio’s risk by gaining foreign currency exposure.
My rule of thumb with currencies is to invest in the country’s currency with a strengthening economic position. It’s a common-sense approach. For example, over the past five years, Australia’s unemployment and debt position have weakened while the US economy has staged an impressive recovery.
Looking ahead, Australia’s Reserve Bank (RBA) is unlikely to raise interest rates for a few years because our economy is fragile. Meanwhile, the US Federal Reserve (Fed) is raising interest rates because their economy is going gangbusters. Therefore, large investors are likely to take their money from Australia and invest it in the US. Together with weaker commodity prices (e.g. iron ore), that could put further pressure on the AUD.
For the record, I think most of the falls in the Australian dollar are done. The historical average level of the Aussie is in the mid-70 cents. Therefore, at 74.05 US cents, the AUD is a long way from its lofty high of 110 US cents back in 2011, and closer to a more ‘normal level’.
Nonetheless, there are many ways to play a weaker Australian dollar.
How to benefit from a lower AUD
There are exchange traded funds or ETFs specifically designed for the purpose of taking Australian dollars and investing them in US dollar bank accounts. The Betashares U.S. Dollar ETF (ASX: USD) is one such example.
Another way to get exposure is to open a US stockbroking account and buy shares of great companies like Apple, Alphabet (the owner of Google) or Amazon.
However, you could also choose to buy shares of Australian companies like Cochlear Limited (ASX: COH) and ResMed Inc. (CHESS) (ASX: RMD) here in Australia.
Cochlear is the world-renowned implantable hearing aid company, developing products to restore the hearing of thousands of people each year. The company has listed its shares on Australia’s ASX but does most of its business globally.
The same could be said of ResMed, a leading biotechnology business developing products for sufferers of respiratory conditions like sleep apnoea.
If you are a long-term investor it makes sense — from a risk and returns perspective — to invest globally. What’s more, the United States houses some of the best companies on the planet. So in addition to lowering portfolio risk and currency gains, savvy investors could make money by holding great companies over the long-term.
I know I am.
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The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Alphabet (A shares), Alphabet (C shares), Amazon, and Apple. 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.