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Falling Aussie Dollar....what does it mean for your investments

The Australian dollar fell to a six-month low last week. On Monday, the Aussie was trading at 89 US cents, down from 90 US cents on Friday. The fall in the Aussie, however, has been in the wings for sometime with the strengthening greenback is unfortunately causing a weakness in the Australian dollar. This is because of the relative differences between the US and Australian central banks' approach to monetary policy.

US monetary policy continues to tighten with the Federal Reserve raising interest rates. At the same time, monetary policy remains loose under the Reserve Bank of Australia. It is impossible to predict whether the Australian dollar will fall further. There are some that believe the Aussie will fall to the mid-80 cent range against the US dollar over the next year.

The Australian economy is heading for challenging times as commodity prices fall. While the building sector has picked up from depressed levels, the pace of this recovery will not be not enough to cushion the blow from the dramatic downturn in the mining industry.

The falling dollar is obviously an issue for all investors. Currency movement is not used as a trading tool for Wild. Rather, he looks at such movements from a strategic standpoint.

Our preference now is with international equities exposure to be unhedged.

This is a strategy also favoured by Morningstar, as outlined in a recent video with Morningstar senior analyst Kathryn Young. “We think unhedged global exposure is really important. Many market participants, including those here at Morningstar, think the Australian dollar is a little overvalued ... if it goes down that would be a tailwind to unhedged global equity exposure," Young says.

From an individual investor's perspective, we do caution against making wholesale portfolio changes. While the Australian dollar's movements make great short-term headlines, it will likely have both a positive and negative impact on portfolios to varying degrees.

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Nevertheless, currency movements can provide some opportunities (and risks) for investors and could look at a greater exposure to global equities.

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