The resilient Australian dollar took a tumble overnight thanks to the strengthening of the U.S. dollar and another sharp drop in the iron ore price.
A surge in oil prices led to the U.S. dollar strengthening against almost all major currencies, not least the Australian dollar. At the time of writing the Australian dollar is fetching 73.9 U.S. cents, around 1.4% lower than this time yesterday.
Adding further pressure to the local currency was the drop in iron ore prices. According to the Metal Bulletin prices fell to US$72.08 overnight, over 10% lower than the start of the week. This decline appears to relate to Chinese officials cracking down on speculative trading on Tuesday.
The Australian dollar may yet come under further pressure in the near future as iron ore continues its retreat and the U.S. dollar gets a boost from a highly-anticipated interest rate hike.
According to CME Group the odds of a rate hike to between 50 and 75 basis points at the U.S. Federal Reserve's December 14 meeting stand at 94%.
Should the Australian dollar continue to weaken and drop below 70 U.S. cents there will be a good number of companies on the ALL ORDINARIES (Index: ^AXAO) (ASX: XAO) quietly celebrating.
Treasury Wine Estates Ltd (ASX: TWE), PWR Holdings Ltd (ASX: PWH), Ardent Leisure Group (ASX: AAD), and Appen Ltd (ASX: APX) all generate a significant portion of their revenue in the United States. A weaker Australian dollar will will give their bottom lines a nice boost.
With interest rates expected to rise at a reasonable pace under a Trump administration, I believe by the end of 2017 the Australian dollar will fall to 65 U.S. cents. This could make it an opportune time to invest in companies that will profit from such a fall, like the companies listed above.
