Should the Reserve Bank cut the official cash rate next month, it is likely that the Australian dollar will continue its plummet, which would fare well for a number of companies listed on the ASX.
Some analysts have suggested that there is a 60% chance the central bank will cut the cash rate to 2.5% when it meets on the first Tuesday of August, in order to give the Australian economy further confidence as inflation remains low and growth in China continues to decline.
Should the cash rate be cut and the dollar continues to fall, we should see gains in shares of Australia’s largest miners, such as BHP Billiton (ASX: BHP), Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG). BHP, for instance, has stated that for each cent the Aussie dollar drops compared to the US currency, the company’s revenue will increase by around $100 million.
The miners have faced enormous headwind in recent years with Chinese demand faltering and the dollar remaining significantly above the long-time average of around US 75 cents. Until May, the Aussie was sitting above parity with the greenback.
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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.