The last few months has seen the Australian dollar fall from highs of $1.05 to be $0.85 against the USD.
What does this mean for the Australian economy and investors?
1) It’s good news for businesses who export goods and services where the price of their products become relatively more attractive; and
2) Generally unfavourable for businesses who import goods which are more expensive in much the same way US travel is now more expensive.
Over the last 12-18 months international unhedged equity portfolios have performed strongly given the bounce in equity markets and currency impacts.
So where to now?
Consensus opinion (and the hopes of the Reserve Bank of Australia) suggests the AUD remains on the high side of the long term average against the USD. However, akin to forecasting weather, currency is one of the most difficult items to predict and it has brought many ‘smart’ institutions undone. This is one of the many factors we consider in making sure your asset mix is optimally structured and we will continue to discuss this in our progress updates. In the meantime a quick refresh on the terminology:
- ‘Unhedged’ international investments benefit from a fall in the AUD/USD exchange rate; whilst
- ‘Hedged’ international investments benefit from a rise in the AUD.