This afternoon the Australian dollar has climbed to buy US79.2 cents on the back of a dovish monetary statement from U.S. Federal Reserve chair Janet Yellen that has softened the greenback as traders put back expectations as to the timing of the Fed's next cash rate hike.
Adding fuel to the Australian dollar fire is the Reserve Bank of Australia's monetary statement on the macro outlook for Australia that has traders doubling down on bets that the RBA's next rate move will be to hike rates later in 2018.
Nothing drives currencies higher or lower like changing cash rate expectations as exchange rates are fundamentally priced by the risk free return (cash interest, money market, or longer debt rates) currencies offer versus comparable peers. Changing global interest rate expectations then have now lifted the AUD/USD cross nearly 4% over the past week.
Many investors will be considering how they should position their portfolios to benefit from a stronger Australian dollar given it seems the RBA's next rate move will be higher, all else being equal.
On the ASX significant importers are commonly touted to benefit from a stronger AUD such as retailers like JB Hi-Fi Limited (ASX: JBH) or wholesale importers and distributors like Lifehealthcare Group Ltd (ASX: LHC) or Dicker Data Ltd (ASX: DDR). All three look reasonable options on a standalone basis with Dicker Data the pick of the bunch.
However, generally it's a bad idea to buy stocks purely on the basis of short-term currency moves as the only thing investors should consider is company quality and valuation.
It's also worth noting there's plenty of scope for the AUD to track lower again over the course of the year as future exchange rates will be determined by unknown economic data points.
Indeed, now could be the right time to load up on high-quality stocks sold off due to their USD exposure such as CSL Limited (ASX: CSL).
However, if you really want to profit from a higher Australian dollar I suggest taking advantage of the better exchange rate to buy the best stocks on the U.S. stock markets.
Just overnight online streaming business Netflix Inc. reported 32% year-on-year revenue growth, with international subscribers up 44% over the last year. The stock is now up 1,233% over just the past five years and could run much higher.
Other tech leaders like Facebook Inc. and Alphabet Inc. (as the parent company of Google Inc) continue to look on relatively cheap valuations compared to many of the S&P/ASX 200's (Index: ^AJXO) (ASX: XJO) leading tech companies. Moreover, President Trump in the U.S. is still intent on delivering big corporate tax cuts to U.S. companies amidst a general strengthening economy.
A stronger AUD then looks a good opportunity to buy U.S. dollars directly to own some of the world's leading companies on the U.S. market.
