Australians abroad: how to cope with currency chaos
Written by Carl Turner on June 25, 2015.
The Australian dollar has taken something of a pounding recently, particularly against the US dollar. In 2014 its value fell by 14% against the US dollar, which is riding high at present. This sharp weakening has been brought about by a combination of factors including falling interest rates and commodity prices, decline in investment in the mining sector, reduction in government spending and flagging consumer confidence.
As I write one Australian dollar is worth US$0.77. Predicted outlooks for the currency vary, although experts seem united about one thing: the outlook is far from optimistic.
In an analysis more buoyant than most, currency expert Shaun Osborne at TD Securities observes that the Australian dollar has nosedived since September 2014 against the US dollar but believes the trend will stabilise while still ruling out a rebound to its previous strength in the near future.
Deutsche Bank’s chief economist for Australia, Adam Boyton, has been less optimistic. Last year he spoke of the AUD facing what he describes as ‘benign collapse’ by the end of 2015 if certain conditions prevail including the US lifting interest rates by mid-2015 and the continued strength of the US dollar.
Economist Saul Eslake of Bank of America Merrill Lynch agrees that the Aussie dollar will continue to decline against the dollar over the next couple of years to a rate of US$0.68 by the end of 2016. This is a pessimistic prediction compared to most. According to a recent Bloomberg survey the average forecast was that the Australian dollar would remain relatively stable at around its current level until the end of 2016.
The fact the experts can’t agree merely serves to highlight that none of us can possibly know if the Australian dollar has bottomed out or not. So where does that leave Australian investors? Sticking to AUS$ bank deposits is certainly not the best option given that the cash rate offered by the Reserve Bank has dropped from 2.5% in January to 2% currently with banks continuing to follow suit.
The advice I would give in the current economic climate is the same advice that I always give, in boom times or bust. A solid portfolio requires a diversified outlook with diversification not only across different assets but also geographically to include international investments. That is the case whether an investor comes from Australia, America or Albania! For further advice based on your own personal circumstances and requirements, arrange a consultation today.