The Australian dollar briefly slipping below parity with the US dollar on Saturday, trading at 99.6 US cents, before recovering to trade at 100.6 US cents earlier this morning. Interestingly, it’s almost a year to the day when the Australian dollar last slipped below parity – on 16 May 2012.
Investors may be wondering how the lower dollar affects them, and possibly how to take advantage of a potentially even lower dollar.
Several ASX listed companies benefit from a weaker currency. Those that earn significant revenues offshore or have large operations offshore, such as News Corporation (NWS.AX), Cochlear, Computershare, CSL Limited (CSL.AX), Aristocrat Leisure, Treasury Wine Estates (TWE.AX) and Amcor.
Then there are those companies that benefit from competing against higher cost imports, such as steel manufacturers Arrium – ex OneSteel, BlueScope Steel as well as Select Harvest and ARB Corp. Retailers David Jones, Myer, Premier Investments, Specialty Fashion, JB Hi-Fi, Harvey Norman, GUD Holdings will also benefit as imported and offshore online products become more expensive.
Travel agent Flight Centre (FLT.AX) will have mixed views. The lower Aussie dollar is not good news for outbound travel, but good news for its offshore operations, which now account for around 40% of revenues, and growing.
Resources companies will be among the biggest beneficiaries, with the vast majority of commodities priced in US dollars. BHP Billiton (BHP.AX) estimates that each 1 cent change in the AUD/USD exchange rate has a $100m impact on net profits. A fall has a positive impact, while a rise has a negative impact. Likewise, major miners Rio Tinto, Fortescue Metals Group and Newcrest will all see benefits from the falling Aussie dollar.
While it would be foolish to invest alone on the hope of the exchange rate falling further, for good companies with significant overseas operations, the lower Aussie dollar can spice up their earnings.
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