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The value of the Australian dollar is a tidbit you see on television news bulletins every evening.
Forget investors. Australians generally like to keep tabs on how strong the local currency is.
That’s because it has a direct impact on people’s lives. How expensive will my family’s next overseas holiday be? How much will that lovely handbag on the US shopping site actually cost?
Right now, in historical terms, the Australian dollar is on the weak side. On Wednesday afternoon it was worth 66 US cents.
So if you think this will head upwards, is there an ASX stock you could buy to make money out of it?
The stock that moves up and down with the Aussie dollar
The short answer is that there are plenty.
Some ASX businesses will perform better with a stronger Australian dollar as it reduces the costs of their supplies from overseas. While other ASX companies prefer a lower Aussie currency because it makes their export goods cheaper for foreign customers.
But for the one ASX stock that’s most directly correlated to the strength of the Australian dollar, we turn to Shaw and Partners portfolio manager James Gerrish.
“The best option is the BetaShares Strong Australian Dollar Fund (ASX: AUDS), which is traded on the ASX. Its goal is to track the performance of AUD v USD,” Gerrish said on a Market Matters Q&A.
“It provides geared exposure to AUD of around 2.5x. i.e. a 1% rally by the Australian dollar against the US will generate a 2.5% return and, of course, vice versa.”
Aside from pure currency speculation, this fund can provide a currency hedge if your portfolio contains many US stocks.
“If you have AU$1,000 in Apple Inc (NASDAQ: AAPL) it would be closely hedged against a fall in the $US by having AU$400 in the AUDS,” said Gerrish.
“But always remember there will be no benefit if the Australian dollar falls.”
The implications of a rising Aussie dollar
The American dollar is conventionally a safe haven currency. If the global economy tanks, then the USD generally becomes stronger.
Conversely, other developed world currencies, such as the Aussie dollar, tend to rise in value when the international economy booms.
Therefore, if you think the worst of inflation and interest rate rises are now behind us, AUDS could be a useful tool to bring in positive returns.
Gerrish’s team actually prefers not to hedge its investments, as currency fluctuations act to cancel out movements in overseas shares.
“We prefer a non-hedged exposure with the currency movements working to create a smoother ride.”
