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How should you invest with the weakening Australian dollar?

The Australian dollar continues to weaken against the US dollar, how are you supposed to invest?

If you measure your return in Australian dollars then changing foreign currencies can make a large short-term difference to your returns. Choosing which shares to buy could make a difference, just like it does if you’re thinking about taking a foreign holiday.

Earlier this month the Australian dollar was worth US$0.67 and now it has fallen to US$0.58.

An ASX share that earns a lot of its profit in the US should mean a better value in Australian dollar terms. So, shares like Altium Limited (ASX: ALU), CSL Limited (ASX: CSL) and so on would have benefited Australian investors.

However, it does mean that if you wanted to buy US shares directly or indirectly through an investment such as iShares S&P 500 ETF (ASX: IVV), the lower Australian dollar means your purchasing power isn’t as strong as it was a few weeks ago.

But the weakening Australian dollar as softened the blow for shares like MFF Capital Investments Ltd (ASX: MFF) and Magellan Global Trust (ASX: MGG) where their underlying net asset values haven’t fallen as much in Australian dollar terms.

Most currencies have weakened against the US dollar as investors seek the safety of the American currency. So if you’re wanting to buy shares that earn in areas outside of the US or those companies are based in other countries then that could be a more affordable move. But don’t forget, foreign currency movements are one-off and unpredictable, don’t miss out on a great investment just because of foreign exchange changes. 

I invested in Magellan Global shares when Australia’s currency was a bit stronger, but at the moment I’ll probably be looking more at Australian based shares and perhaps non-US shares.

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Tristan Harrison owns shares of Altium, Magellan Flagship Fund Ltd, and MAGLOBTRST UNITS. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of Altium. 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.