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Is it time to sell the Australian Dollar (A$)?

The Australian Dollar (A$) (AUDUSD) has fallen around 2.7% in the past fortnight. It could be the ideal time to invest in the US Dollar (USD), or buy shares of companies with USD exposure.

Here are three reasons why I’m considering selling more Australian Dollars (A$):

  • US interest rates: Overnight, the US stock market closed at a record high after the Federal Reserve released minutes revealing that interest rates will rise again soon. In my opinion, that means the Australian Dollar could be headed lower before it goes higher.
  • Australian economy: The Australian economy is, as far as I can tell, in a relatively weaker bargaining position to that of the US. The US economy, its financial markets and employment levels are ticking along nicely. It could be argued that the outlook for the Aussie economy is far less compelling.
  • Iron ore: Australia is a resources-rich economy and dependent on the prices of many commodities, like iron ore. A recent rally in the price of the steelmaking ingredient could be artificially boosting the Aussie dollar.

How far can the Aussie dollar fall?

For the record, I do not believe the Aussie dollar has much further to fall. Its historical average level is around the mid-70 US cents. However, I think it could fall before it goes higher and there are many risk benefits from spreading your investments internationally.

How can you ‘sell’ the Aussie dollar?

It might sound confusing, but what I mean by ‘sell the AUD’ is simple: Get rid of your local currency exposure in favour of another, like the US dollar.

You could do that by going down to your currency exchange but that’s expensive and inconvenient.

I think the best way investors can get US dollar exposure is via their stockbroking account.

For one, you can buy shares of Australian companies listed on the ASX. Many of them do most of their business overseas, like the investment bank Macquarie Group Ltd (ASX: MQG) or hearing aid business Cochlear Limited (ASX: COH). You could also buy an ETF.

The other way is to open a US stockbroking account. For example, when I transfer Australian dollars into my US stocks account the money is converted to USD at competitive rates — better than you will get at the currency exchange — and the money starts earning interest like a US bank account would. Then, you can buy shares of great international companies.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes and encourages your feedback. You can follow him on Twitter @OwenRask.

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.