INSIDE INVESTOR: How to profit from a fall in the Aussie dollar

Keeping in mind that the overvalued Australian dollar could drop next year, it may be time to consider investing offshore through ETFs or local companies that specialise in buying shares or property overseas.

There is every reason to think the Australian dollar will fall sometime next year.

There is no doubt it is overvalued and that it is hurting many parts of the economy. But gone are the days when the Aussie dollar would react simply to changes in commodity prices, or rather expectations of changes in commodity prices.

These days, a whole range of other forces are at work. Most of the developed world economies are deliberately forcing their currencies down. That’s keeping ours up. And given Australia is one of the few developed economies with a AAA credit rating and interest rates that are well above zero, truckloads of cash are flooding in, looking for a decent return.

So it is difficult to know exactly when the currency will step down a notch. But it is a good time to think about ways to profit from a lower currency.

Given it is close to record highs, the Australian dollar’s buying power is the strongest it has ever been. That is, if you are buying something from overseas. As a nation, we’ve been spending a great deal of our hard earned travelling the world and buying imported consumer goods like flat screen televisions.

But there are ways to invest offshore as well. And before you jump in to buy that property in Bali you saw on the internet, take a deep breath. There are a large number of Exchange Traded Funds (funds that trade on the stock exchange) and listed local investment companies that specialise in buying shares or property overseas.

These groups scour the world looking for good opportunities. So they look for investments that are good value. And right now, they know that if the Aussie dollar falls, they will be ahead simply because they bought with a currency when it was at its peak.

If you find that idea a little too exciting, think about all those Australian companies that have been punished by the strength of the Aussie dollar. Most have had a tough time but have hung on by cutting costs, improving efficiency and better management.

So when the Australian dollar eventually does drop, they will be in prime position to reap the rewards. We are talking about companies that either earn a large portion of their income offshore and hence have been getting poor returns simply because of the exchange rate, or companies that have had to battle against cheap imports.