Is there an ASX stock I could buy to profit if the Aussie dollar rises?

There is a way to invest to directly make returns if the local currency booms against the US dollar.

| More on:
A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The value of the Australian dollar is a tidbit you see on television news bulletins every evening.

Forget investors. Australians generally like to keep tabs on how strong the local currency is.

That's because it has a direct impact on people's lives. How expensive will my family's next overseas holiday be? How much will that lovely handbag on the US shopping site actually cost?

Right now, in historical terms, the Australian dollar is on the weak side. On Wednesday afternoon it was worth 66 US cents.

So if you think this will head upwards, is there an ASX stock you could buy to make money out of it?

The stock that moves up and down with the Aussie dollar

The short answer is that there are plenty. 

Some ASX businesses will perform better with a stronger Australian dollar as it reduces the costs of their supplies from overseas. While other ASX companies prefer a lower Aussie currency because it makes their export goods cheaper for foreign customers.

But for the one ASX stock that's most directly correlated to the strength of the Australian dollar, we turn to Shaw and Partners portfolio manager James Gerrish.

"The best option is the BetaShares Strong Australian Dollar Fund (ASX: AUDS), which is traded on the ASX. Its goal is to track the performance of AUD v USD," Gerrish said on a Market Matters Q&A.

"It provides geared exposure to AUD of around 2.5x. i.e. a 1% rally by the Australian dollar against the US will generate a 2.5% return and, of course, vice versa."

Aside from pure currency speculation, this fund can provide a currency hedge if your portfolio contains many US stocks.

"If you have AU$1,000 in Apple Inc (NASDAQ: AAPL) it would be closely hedged against a fall in the $US by having AU$400 in the AUDS," said Gerrish.

"But always remember there will be no benefit if the Australian dollar falls."

The implications of a rising Aussie dollar

The American dollar is conventionally a safe haven currency. If the global economy tanks, then the USD generally becomes stronger.

Conversely, other developed world currencies, such as the Aussie dollar, tend to rise in value when the international economy booms.

Therefore, if you think the worst of inflation and interest rate rises are now behind us, AUDS could be a useful tool to bring in positive returns.

Gerrish's team actually prefers not to hedge its investments, as currency fluctuations act to cancel out movements in overseas shares.

"We prefer a non-hedged exposure with the currency movements working to create a smoother ride."

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Apple. The Motley Fool Australia has recommended Apple. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Investing Strategies

Man holding out Australian dollar notes, symbolising dividends.
Dividend Investing

2 ASX 200 dividend shares that could be strong buys this month

Analysts reckon income investors should be snapping up these shares while they can.

Read more »

A mature aged man with grey hair and glasses holds a fan of Australian hundred dollar bills up against his mouth and looks skywards with his eyes as though he is thinking what he might do with the cash.
Dividend Investing

Here's the Fortescue dividend forecast through to 2026

Analysts predict continuing strong dividends in 2024 but the outlook is significantly different for 2025 and 2026.

Read more »

Man holding Australian dollar notes, symbolising dividends.
Dividend Investing

An 8% yield on CBA shares? Here's how these passive income investors achieved it!

CBA pleased passive income investors with a 2.4% interim dividend boost.

Read more »

businessman handing $100 note to another in supermarket aisle representing woolworths share price
Consumer Staples & Discretionary Shares

How is the Coles share price down 3% today?

Coles investors should be delighted with the company's share price drop today.

Read more »

Falling yellow arrow with descending wooden bars with the percentage sign written on them.
Dividend Investing

3 all-star ASX dividend stocks I'd own in retirement to combat falling interest rates

I reckon these three dividend stocks will be worth holding when rates are cut.

Read more »

A man points at a paper as he holds an alarm clock.
Dividend Investing

Move quickly if you want to receive the Super Retail dividend

It won't be long until this retailer pays its next dividend.

Read more »

Woman smiling with her hands behind her back on her couch, symbolising passive income.
Investing Strategies

Investing in an ASX share portfolio for lifelong passive income!

It’s never too late to begin investing in quality ASX shares to build up a lifelong passive income stream.

Read more »

A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares
Dividend Investing

Forget AGL: Buy this magnificent ASX utilities stock instead

The dividends are flowing from this stock.

Read more »