Although it hasn't gotten as much attention as some other developments on the financial markets over the last few weeks (tariffs and record highs are undoubtedly more captivating for ASX investors), the recent rise of the Aussie dollar has been nothing short of extraordinary.
As recently as early December, one Aussie dollar was buying around 65 US cents. Today, that same dollar can buy more than 71 US cents. That might not seem like much to write home about, but it represents a change of about 10% against the greenback in just a few weeks.
What's even more notable is that the Aussie dollar is sitting at a level investors haven't seen for more than 3 years. Yep, you'd have to go back to January 2023 to see the last time you could get 71 US cents for one Australian dollar. And back to mid-2022 for the last time it was more than a fleeting moment.
A change in the value of our national currency of this magnitude has huge ramifications for both our economy and ASX investors.
Image source: Getty Images
Should ASX investors worry?
On the economic front, a rising dollar makes exports more expensive for foreign buyers and makes imports cheaper for Australians, in basic terms. You may have already noticed this effect when filling up your car.
Since Australia is a net importer of fuel and many other everyday goods, a higher dollar can help reduce inflation. As such, the Reserve Bank of Australia (RBA) and anybody with a mortgage, by extension, will be happy to see a higher dollar.
The ASX shares that will be cheering on a higher dollar are those companies that import most or all of the goods they sell to their Australian customers. These include Wesfarmers Ltd (ASX: WES), JB Hi-Fi Ltd (ASX: JBH), Harvey Norman Holdings Ltd (ASX: HVN), and Ampol Ltd (ASX: ALD).
Conversely, a higher dollar adversely impacts any ASX share that exports what it produces. For ASX investors, that mostly applies to mining companies such as BHP Group Ltd (ASX: BHP), Fortescue Ltd (ASX: FMG), and Northern Star Resources Ltd (ASX: NST).
It will also negatively impact ASX investors in companies such as CSL Ltd (ASX: CSL) that report earnings in US dollars.
Similarly, it will negatively impact the value, in local terms, of any US dollar-denominated shares that ASX investors may own.
Foolish Takeaway
Movements in the Aussie dollar can have big implications for the economy and for ASX investors. However, they are a normal part of the healthy functioning of an economy.
As such, ASX investors may see some short-term pain from the Aussie dollar's rise. But overall, it should make very little difference to the financial fortunes of long-term investors.
