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Warning: The Australian dollar and gold price are now flashing red at GFC levels

In a worrying sign for the health of the Australian economy and outlook for the S&P/ ASX200 (ASX: XJO) two key economic data points are now back at levels last seen during the depths of the Global Financial Crisis (GFC). 

The Australian dollar is buying just US67.7 cents this afternoon, which is a level of weakness not seen since New Year’s day in 2009 during the depths of the GFC.

Between January and March 2009 as the global economy threatened to collapse the Australian dollar regularly traded between US64 cents to US67 cents before steadily rising out to 2013 on the back of rising Chinese demand for Australian commodities. 

This time though the currency has slumped as the Australian economy is struggling from feeble inflation, weak wages growth, and excess household debt largely linked to mortgages over expensive residential property. 

This time it looks unlikely that China can ride to the rescue via a construction super cycle, as it’s in the middle of an escalating trade war with the US that is hurting its own growth rates. In 2018 China reported its slowest GDP growth in 28 years, although it still remained at a robust 6.6%.

Therefore it seems possible the Australian dollar could fall even lower given the RBA’s dovish policy stance and as a growing trade war could lead to a flight to safety as the US dollar gets bid higher. 

For share market investors one obvious way to play a lower Australian dollar is to buy high-quality healthcare businesses that earn the majority of their revenue and profits in US dollars. The three market leaders in this space being CSL Limited (ASX: CSL), ResMed Inc. (ASX: RMD) and Cochlear Ltd (ASX: COH). As a bonus their revenue streams are also relatively defensive as providers of healthcare products in high demand. 

Elsewhere the gold price has touched a six-year high of US$1,469 this afternoon which is not a post-GFC record in US dollar terms but it is in Australian dollar terms.

Gold at A$2,169 an ounce is a post-GFC record and a cause for concern as it’s considered an asset that rises as equity markets fall on economic problems. 

One option for ASX investors worried about a share market crash is to buy leading gold miners like Newcrest Mining Limited (ASX: NCM), Northern Star Resources Ltd (ASX: NST), or St Barbara Ltd (ASX: SBM).

While another miner in Regis Resources Limited (ASX: RRL) recently reported an all in sustaining cost of A$1,029 for each ounce of gold mined over the financial year to June 30, 2019. At those costs it could now be earning more than a A$1,000 net profit margin on every ounce of gold mined and sold.  

Where to invest $1,000 right now

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*Returns as of June 30th

Tom Richardson owns shares of Cochlear Ltd., CSL Ltd., and ResMed Inc.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. and CSL Ltd. The Motley Fool Australia has recommended Cochlear Ltd. and ResMed Inc. 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 Scott Phillips.

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