The Australian dollar has fallen below parity with the US dollar for the first time in five months, this morning buying 99.45 US cents, from a high of $1.08 in February 2012.
Where it goes from here is anybody’s guess.
Banks are forecasting the Aussie dollar to stay around 98 cents, while some analysts suggest Australia’s relatively high interest rates and low levels of debt could see buyer interest push the Aussie back up over $1. Academic Ken Clements, at the University of Western Australia, has a different view and argues that it should trade much closer to 75 cents than to parity.
The falling dollar is good news for exporters and companies with offshore earnings, as it means they will now receive more Australian dollars in revenue. It’s also positive for local manufacturers as the falling Aussie makes imports more expensive and consequently their products more attractive for consumers. It may also mean a mini revival in the local retail market, as overseas shopping loses some of its attraction.
Another sector that expects to benefit from the fall is the Australian tourism industry, as we should see a greater number of travellers visiting Australia. All up, it’s good news for many sectors of the economy.
Which companies are most likely to benefit?
Since the beginning of March 2012, when the Aussie dollar started to fall from $1.08, shares in CSL Limited’s (ASX: CSL) shares have risen 16%, and Cochlear Limited’s (ASX: COH) shares have risen 9.4%. It’s not hard to see why from the following table, which shows examples of the impact on 2011 profits the high Aussie dollar had, compared to 2010 levels (around 92 cents). All of these companies will benefit from a lower Aussie dollar.
Impact of high A$ on earnings
|Aristocrat Leisure Limited (ASX: ALL)||Net profit down $7.1m, an 11% difference|
|CSL Limited||Net profit down $116m, a 12% difference|
|Cochlear||Sales up 10% instead of 17%.Net profit down $15m, an 8% difference|
|BHP Billiton Limited (ASX: BHP)||Each US1c change has a US$100m impact on net profit in 2012|
Source: Company reports
According to Goldman Sachs, the biggest winners from the falling Aussie would be OneSteel Limited (ASX: OST), Select Harvests Limited (ASX: SHV), Incitec Pivot Limited (ASX: IPL), Aristocrat, Bluescope Steel Limited (ASX: BSL), Sims Metal Limited (ASX: SGM), Orica Limited (ASX: ORI) and Treasury Wine Estates Limited (ASX: TWE).
Retailers should also garner some support. With online purchases becoming more expensive, local retailers stand a good chance of picking up more business. The falling Aussie could be the saviour the likes of David Jones Limited (ASX: DJS), Myer Holdings Limited (ASX: MYR) and JB HiFi Limited (ASX: JBH) desperately need.
The Foolish bottom line
Further news from China suggesting the country’s growth is slowing further, evidence that the US is recovering, more bad news from Europe and any further interest rate cuts by the Reserve Bank, are all factors that will push the Aussie further down.
The way those issues can’t seem to keep off the front page, its likely we could see the Aussie dollar much lower in six months’ time than it is today — which should be good news for Australian investors.
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Motley Fool contributor Mike King owns shares in BHP, Cochlear, JB HiFi and CSL. The Motley Fool‘s purpose is to help the world invest, better. Take Stock is 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. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691).Authorised by Bruce Jackson.