Retailers and travel companies benefit as Aussie dollar rallies

Retailers and Aussie tourists were amongst the biggest beneficiaries from the Reserve Bank of Australia’s decision to leave interest rates on hold yesterday with the Aussie dollar (AUD) surging more than 2% from US87.6c on Tuesday to over US89.3c on Wednesday.

Unlike the most recent board meetings, the emphasis of yesterday’s meeting was not so much on how the currency was overvalued but more so on the effects of inflation. While the RBA’s top man Glenn Stevens has previously suggested he would like to the see the AUD fall back towards the US80c mark in order to stir Australia’s economic growth, it appears that the board is satisfied with where it currently sits.

For much of the time between 2011 and 2013, the AUD traded above parity with the USD which benefited travel companies such as Flight Centre Travel Group Ltd (ASX: FLT) and Corporate Travel Management Ltd (ASX: CTD). It also benefited retailers such as Harvey Norman Holdings Limited (ASX: HVN), JB Hi-Fi Limited (ASX: JBH) and The Reject Shop Ltd (ASX: TRS) which import most of their products from overseas.

However, after years of the AUD remaining strong, many companies were also desperate to see the dollar fall further. These include Australia’s largest miners, such as BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG). Other companies that would also benefit from the falling dollar are Cochlear Limited (ASX: COH), ResMed Inc. (ASX: RMD) and QBE Insurance Group Ltd (ASX: QBE) due to the fact that much of their revenues are derived in USD.

Foolish takeaway

While it is very difficult to determine whether a company is over or undervalued, it is likely we will see the dollar fall below its current level in the coming months as the US economy strengthens.

The top ASX pick you've never heard of...

Top Motley Fool analysts just identified their #1 ASX pick for 2014, a small-cap stock that could be poised for big gains (and offers a fat, fully franked dividend!). Discover all the details now, including the name and code, in this FREE investment report, "The Motley Fool's Top Stock for 2014."

Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.