The Australian dollar has resumed its recent rally after the Reserve Bank of Australia left interest rates unchanged on Tuesday afternoon.
At 2:30pm on Tuesday, the central bank announced that it would leave interest rates on hold at their record low of 2 percent. The outcome had been expected, with zero out of 28 economists surveyed by Bloomberg forecasting a cut, but the market was hoping for confirmation that the Bank was still open to more interest rate cuts.
Instead of suggesting that 'further easing of monetary policy may be appropriate over the period ahead', the Bank said that: "Information on economic and financial conditions to be received over the period ahead will inform the Board's assessment of the outlook and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target."
Stronger indications of future interest rate cuts would likely have kept the Australian dollar subdued, possibly even forcing it down towards the targeted US 75 cent mark. But instead, the currency has surged 2.2 percent to US 77.75 cents just before 8:00am this morning (Sydney time).
With house prices skyrocketing and iron ore prices recovering, there is pressure on the Bank to not lower interest rates any further. But at the same time, a weaker Australian dollar is seen as a necessity to rebalance the local economy and to encourage growth outside of the mining sector.
In fact, the need for a lower exchange rate has been one of the key factors motivating the Reserve Bank's easing bias until now.
What happens now?
In yesterday's announcement, the Reserve Bank borrowed a line that it had employed in prior months saying that "further depreciation (of the dollar) seems both likely and necessary".
To begin with, it is expected that the US will begin increasing its own interest rates at some point this year which will boost demand for the US greenback (thus forcing the Australian dollar lower) and if that doesn't happen, then there is a good chance that the RBA will be forced to cut interest rates even further.
With the dollar still considered by most economists as being overvalued compared to its US counterpart, a great opportunity exists for investors wanting to profit as the currency inevitably weakens. Of course, investors could look to invest in companies such as Westfield Corp Ltd (ASX: WFD), Amcor Limited (ASX: AMC) or Computershare Limited (ASX: CPU) which all generate a significant portion of their earnings overseas, but there is another way to profit that few investors are likely to be aware of (yet).
Early last week, Australian investors were introduced to a new tool to gain direct exposure to the US stock market as BETANASDAQ ETF UNITS (ASX: NDQ), or BetaShares NASDAQ 100 ETF, made its debut on the local sharemarket. This exchange-traded fund follows some of the world's largest companies with its biggest holdings including Apple, Microsoft, Amazon.com, Google and Facebook. The ETF currently trades at $10.18 per unit and could be a great way for investors to profit as the Australian dollar inevitably weakens.
Before you buy shares in any of these companies however, there's another stock which could be an even greater buy today…
