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One would have to be locked away from the outside world to have not heard about the recent strength in the Australian dollar. Every day we see comments to the tune of AUD/USD parity in the near term, a likelihood that may just happen sooner than most analysts expect.
Other than a slightly cheaper flat-screen TV in time for Christmas, what does this mean for Australian investors? This is a topic which will be explored further in the upcoming Self Directed Investor Newsletter.
Today, we’ll explore just what leverage a higher Australian dollar provides in today’s international market. Readers of the weekly Trading Tutors Newsletter reside in all corners of the globe and whilst today’s examples are slanted towards the Australian Investor, those that reside in other countries may be able to take advantage of a similar situation.
A high Australian dollar can influence a number of different sectors. Firstly, and the most obvious is imports and exports. Products from other markets become cheaper for the Australian market. Buying power is increased and products such as clothes, furniture and electronics may become cheaper to the Australian consumer. All things being equal, one would expect the retail sector to become the main beneficiary. –If only life were this easy...
A result of the higher Australian dollar may be higher inflation. The easiest measure to combat inflation is to raise interest rates. Higher interest rates mean less money in the pockets of mortgage holders, and that’s the vast majority of the Australian adult population.
Perhaps a better tactic to take is to invest in assets which were only very recently, much more expensive to the Australian Investor. The most obvious being those priced in US dollars. If you live in Australia, traditionally buying US stocks carried not only future currency risk, but an exchange differential which immediately sliced 20% off the value of your purchase. Now, that same currency risk applies, except each Australian dollar you move to the US, receives very nearly the equivalent in US dollars. That’s a handsome premium to just a few months prior. With the availability of stocks, options, futures and foreign exchange readily available on US markets, there are a plethora of choices to the international investor looking to take advantage of the weaker US dollar.
Investing in international markets can be seen as an excellent form of diversification and is much easier today with the availability of international markets through existing brokers and Exchange Traded Funds. Many readers will be aware, HUBB holds a US based DividendKey course each month, open to US and International Investors. Furthermore, by opening an OptionsXpress account today, you have access to US stocks, futures and options, as well as receive live Elliott Wave data through your ProfitSource Software at no extra cost. What are you waiting for! Take advantage of it today.
Happy Investing
Lachlan McPherson
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