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Is the Australian dollar (A$) ever going to fall?

The Australian dollar (A$) (AUDUSD) has risen 3% against the US dollar in a month.

AUD rises against USD


Source: Google Finance

The recent rise of the Australian dollar goes against the longer-term movements in the currency, which is down from over $1.05 in 2013.

The recent rises in the Australian dollar have coincided with suggestions that central banks around the world could send interest rates higher sooner rather than later.

According to Sydney Morning Herald, 16 of the 26 economists surveyed said Australia’s interest rates will remain unchanged until 2019. Five economists predicted an increase in official interest rates tomorrow.

If interest rates head higher, the Australian dollar could find strength.

However, in my opinion, rising interest rates appear to be a couple years off given the uncertainty in the housing and employment sectors, as well as the resources sector. Not to mention our record household debt levels.

Will the AUD fall?

The long-run average level of the AUD is around the mid-seventies. Currently, the Aussie dollar sits at 76.8 US cents.

While many importers and travellers will be welcoming the higher Aussie dollar. A higher Aussie dollar is typically bad news for Australian mining shares like BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO), which sell their product in US dollars.

However, there may be more reasons to be negative on the Australian dollar. For example, the US economy appears to be firing on all cylinders while Aussie households are being squeezed by higher rates on mortgages. We also have record debt levels at a time when our banks, such as Commonwealth Bank of Australia (ASX: CBA), are raising interest rates.

Recent falls in commodity prices also paint a bleak outlook for our economy.

Foolish Takeaway

I think it’s too early to suggest interest rates will rise. However, it’s possible that just a ‘hint’ of rising interest rates will be enough to keep the Aussie dollar at elevated levels.

In my opinion, the recent strength could be an opportunity for savvy long-term investors to diversify abroad or run the ruler over shares of Australia’s international heavyweights like CSL Limited (ASX: CSL).

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen 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.

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