subject: Take Advantage Of The High Aussie Dollar [print this page] With the Australian dollar hitting a yearly high, it's great if you're heading overseas. But it also impacts you in terms of investing.
Commodity prices
The Australian dollar is at the highest level in 14 months. In 2009 so far, the Aussie dollar has risen 30% against the US currency.
That's great news for commodity prices, because commodities are mostly traded in US dollars. If the US dollar weakens, it makes the commodity cheaper in non-US dollar terms.
And that's why we've seen oil prices reach a yearly high, and gold prices hitting all time record highs.
Good news for importers
A high currency is great news for importers and bad news for exporters.
For an importer, it means that they are able to buy products from overseas at cheaper prices. It works the same way as internet shopping. Buying things from the US and having them shipped over to Australia is at the cheapest levels in more than a year.
Importers end up getting their products at cheaper prices, but usually not all of that cheap price is passed onto consumers.
That means margins for importers increase.
Some of the importers that have been doing well on the Australian sharemarket due to the high Aussie dollar are the retailers such as Harvey Norman, JB Hi-Fi, David Jones and even some of the staple companies such as Woolworths.
Bad news for exporters
On the flipside, it's not good news for exporters. That's because Australian goods start to look expensive to the rest of the world.
Companies that make most of their money overseas are impacted negatively as well. When they bring their profits back into Australian dollars, the company loses on the currency exchange.
For investors
For an investor, if you are invested overseas, you want the Aussie dollar to fall so that you make money on the currency movement.
Conversely, if the Aussie dollar rises while we are invested overseas, we make losses on the currency which can eat into the performance of our investments.
For companies
When companies are making money overseas, like investors, they want the currency to fall to have currency movements work in their favour.
Companies that make significant earnings in the US include Brambles, QBE Insurance and CSL.
All of these companies have been underperforming the Australian sharemarket in 2009 because the Aussie dollar has been moving up while they are invested overseas.
How to invest overseas?
If you are considering investing overseas, you can do it through Exchange Traded Funds that are traded on the ASX just like shares.
You can buy ETFs that track the major US indices, UK and London indices as well as particular sectors and commodities.
Remember, if you invest in these products which invest in overseas assets, you want the Aussie dollar to eventually fall by the time you exit the investments.
So in summary, consider investing overseas, be cautious with exporters but be positive about the impact that the high Australian dollar will have on importers.
by: Julia Lee
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