The flip side of cheaper home loans, assuming the Reserve Bank (RBA) cuts the official cash rate in June, is a falling Australian dollar.
Admittedly, predicting the dollar’s fortunes is something of a weird science, and beyond RBA cuts, is also affected by our key trading partners.
Nevertheless, since the start of 2019, the dollar recently fell below US70 cents to a 10-year low of US68.27 cents, but recovered a little last week to finish at US69.23 cents.
But AMP Capital and InvestSMART claim that US65 cents is a real possibility later this year.
With a moving dollar heralding mixed blessings, you need to work out if future currency volatility spells more good or bad news for your wallet.
Winners and losers
Given that you own Aussie shares, either direct or via your super fund, it’s important to understand how they’re affected by a falling dollar.
First the good news. A lower dollar is great for exporters (offshore earners like miners and manufacturers) that become more price competitive in overseas markets. Offshore earners also benefit from what is called a ‘translation effect’. In other words, they receive a nice boost when large amounts of their revenue in US dollars are converted to Australian dollars on a balance sheet.
Everything else being equal, InvestSMART chief market strategist Evan Lucas says a 10 per cent drop in the dollar could typically be expected to increase company earnings by an estimated 3 per cent. That’s great if you own shares, as this can find its way to the share price.
However, it’s the discretionary firms that import goods (like Harvey Norman and JB Hi-Fi) that see costs rising as the dollar falls. This can result in a double whammy of your shares declining in value, and higher prices at the checkout.
For example, after a 9 per cent drop in the dollar against the US dollar last year, the price of unleaded petrol surged 20 per cent from $1.32 in November 2017 to $1.60 by October 2018.
Travelling overseas? A lower dollar can be equally harmful to your hip pocket, as it buys less foreign currency. With fuel costs accounting for 30 per cent of airline operating costs, you also risk higher air fares.
Stretch your wallet further
Gas-up when it’s cheap: If you spot a bargain while you’re driving, fill up, and don’t forget to get that extra 4 cents per litre off using a voucher. Fill up a week before major holidays, especially Easter, and remember that turning off air-con can drive your petrol 20 per cent further. Check out sites like MotorMouth for sites with the lowest fuel prices.
Cheap seats: Booking well in advance should buy you the cheapest seats on any plane. Watch out for flight specials or price alerts, and use frequent flyer points wisely.
Flight forecasts: Kayak, Google Flights, Hopper or Cheap Flights can indicate whether to buy now or wait for cheaper fares.
At the checkout: Buy more of the staples (in your kitchen and bathroom) when they’re heavily discounted.
Hotels and clothes: Shopping online using a discount code often results in a 5 to 10 per cent discount, and always cross-check prices across multiple sites.
Home loans: Consider the next RBA rate cut as an opportune time to renegotiate your home loan or find another one.
Buying FOREX: Never exchange money at the airport, a foreign hotel or a shop where rates are lousy. If you think the dollar might fall while you’re overseas, consider locking in an exchange rate with a pre-paid travel card. Always spend in the local currency, and avoid costly travellers’ cheques, unless you’re paranoid about being robbed.
Cheap and cheerful: Consider destinations where your dollar drives the best bargain. Maybe Asia instead of America or the UK, for example?