After US Federal Reserve Chairman Ben Bernanke announced a step back from US bond buying in the early hours of Thursday morning AEST, the Australian dollar immediately fell one cent against its US counterpart.
The S&P/ASX 200 (ASX: XJO) (^AXJO) also fell on the news, even though Bernanke said any change to the purchases wouldn't happen until substantial and sustainable improvement was seen in the US labour markets. "We are moving in the right direction [but] I don't think we can be satisfied given where the labour market is" Mr Bernanke said.
When quizzed over a possible timeframe for when the reduction in purchases would take place, he simply said, "I don't know. It's going to depend on the data." The Fed has purchased almost US$3 trillion of Treasury and mortgage bonds, up from only $800 million before the GFC.
At market close yesterday, the Australian dollar was buying just over 96 US cents, a stark contrast from April when it was up around $1.05. The announcement from Bernanke and the resulting currency drop sent the S&P/ASX 200 down more than 100 points and as a result very few stocks had a positive day of trading. A notable exception to this was QBE Insurance Group (ASX: QBE), which climbed $1.00 or 6.57%.
In the coming days we could see the dollar drop further as the US economy rallies, local miners struggle and the big banks begin a period of contraction. Yesterday, Flight Centre (ASX: FLT) shed 6.99% from its share price as investors played the currency markets and realise that demand for overseas travel drops when faced with lower exchange rates.
Foolish takeaway
Regardless of the macro factors that affect our indices, currencies and commodities, picking good quality stocks should be every investor's priority. Sure, doing it all at once will help your profit margins but that can be extremely difficult. Some quality stocks blue chips that stand to gain from contracting Aussie dollar are Brambles (ASX: BXB), Cochlear (ASX: COH) and the big miners.
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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.
