Things are not looking good for the Australian Dollar (AUD) vs the US Dollar (USD) and this is great news for Aussies who invest in US Property. Why? Because owning USD denominated assets is a hedge against a falling AUD. In this newsletter we’re going to explore the relationship between a US investment property (ie. a USD denominated asset) and the growth/income of that investment when converted back into a weaker AUD.
Consider the simplified example below explaining how a falling AUD affects the growth of your investment when priced in AUD:
This represents a profit of $13,889AUD purely from the drop in value of the AUD vs USD. If the AUD fell to 70cents the profit would be $31,746AUD. If it did indeed drop as low as 60cents the profit would be a staggering $55,556AUD.
Note: this example does not consider growth in value of the property due to appreciation. If you factor in the growth in value of the property due to appreciation the profit made when selling the property will increase accordingly.
Consider the simplified example below explaining how a falling AUD affects the rental income your investment produces:
Hopefully these two examples have highlighted the merit in owning a USD denominated asset when faced with a falling AUD. Of course, this phenomenon goes both ways. If you wait until the AUD drops to 80cents to buy a property you will pay MORE in AUD for the same property. A property that costs $100,000USD costs $111,111AUD when the exchange rate is 90 cents. If you wait until the exchange rate drops to 80 cents that same $100,000USD property will cost you $125,000AUD.
You miss 100% of the shots you don’t take – Wayne Gretzky