The Australian dollar has dropped to levels not seen since July 2012, but how low can it go?
Over the past month, the Australian dollar has dropped more than 5% against the greenback, sparked by doubts over Chinese growth and fuelled by the reserve bank's interest rate cut last week. A double sided effect has the led the currency down. Doubts over the growth of the Australian economy taking its toll on the currency and hopes of a U.S. recovery has seen investors sell it down.
Some, like LTG Goldrock director Andrew Barnett believe the currency could drop further, saying the that "it doesn't surprise me the Australian dollar is at 98.00 US cents and it won't surprise me if it is at 93 cents between now and the end of July."
However, this month's volatility represents the biggest drop since it fell over 6% in May 2012, then rebounded over 5% the following month. A rebound now could also be likely, as the Australian economy still exceeds the average growth rates of many developed countries, has a AAA credit rating and healthy interest rate, which makes it appealing on international bond markets and to investors alike.
Genzo Kimura at Sumitomo Mitsu Trust Asset Management said he expects a rebound and explained that "central banks like buying Aussie dollars. When it becomes too weak, central banks love to buy".
Foolish takeaway
No matter whether it drops now or later in the year, there are many companies which stand to gain from a depreciating dollar. Mining resources companies like Rio Tinto (ASX: RIO) and BHP Billiton (ASX: BHP) are two battered stocks expected to be helped by the change in the currency. BHP estimates that each one cent change in the AUD/USD exchange rate provides approximately $100 million net profit. Cochlear (ASX: COH) and Brambles (ASX: BXB) both have substantial international operations in the US with 42% and 47% of revenue coming from the Americas respectively. Perhaps it's time to add these stocks to your watchlist.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Owen Raszkiewicz owns shares in Cochlear and Rio Tinto.
