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Monday, 08 October 2012 08:17

Where to for the Australian Dollar?

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The strength of the Australian dollar has been positive for those wishing to travel overseas or to purchase goods online from overseas, but inbound tourist operators, exporters and bricks and mortar retailers are not likely to share the enthusiasm.

The Australian currency is often referred to as a commodity currency which means that it generally behaves in keeping with commodity prices.

Below is a chart showing the long term trends of Commodity Prices (green line) and the $AUD/$USD (blue line).

$AUD vs Commodity Prices

Source:  IRESS, RBA and Macquarie September 2012

In the past 20 years the Australian dollar has followed the Commodity Price Index, and yet right now there lies a massive gap between the currency and commodity price index.

Picking currency trends is a dangerous occupation, however it seems to be accepted within the finance profession that the Australian dollar is over valued and is only a matter of time before is corrects itself.

Should the Australian dollar devalue, which investments would benefit?

  • Unhedged International Equity Funds
  • Australian companies with earnings from overseas (providing not hedged), ie CSL
  • Companies providing in bound tourism services
  • Australian companies exporting goods (providing no hedging)

This material has been provided for general information purposes and must not be construed as investment advice. This material has been prepared without taking into account the investment objectives, financial situation or particular needs of any particular person. Investors should consider obtaining professional investment advice tailored to their specific circumstances prior to making any investment decisions and should read the relevant Product Disclosure Statement.

 

Read 811 times Last modified on Monday, 08 October 2012 08:17
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