22 July 2020
- The economic consequences of the COVID-19 pandemic in the US are expected to trigger a fall in the US dollar against major global currencies over the next four years. By 2024 the Australian dollar could rise as high as $0.84 (US 84 cents)
- The fall in the US dollar (USD) will be probably be associated with rising inflation in the US, from the present level of less than 2% to as high as 5%. This does not mean there will be worldwide inflation – other countries will be able to decide how much inflation they allow in their economies.
- We recommend that Australian investors reduce their exposure to Australian companies which derive a large part of their revenues in US dollars, such as the global healthcare groups. The rise in the Australian dollar (AUD) against the US dollar reduces the AUD value of USD profits.
- Australian investors should also reduce their exposure to the broad US market. At its low point in March 2020, the AUD had fallen -44.7% against the USD since the highs of July 2011, boosting the AUD value of US equities. This effect is about to go into reverse… [read more]