In a speech to the International Econometric Society in Hobart today, RBA governor Glenn Stevens has warned that the Australian dollar is set to fall significantly, “and not just by a few cents”.
“But lest there be any uncertainty about this, let me be clear, again, that the exchange rate remains high by historical standards. Nonetheless, we think that investors are under-estimating the likelihood of a significant fall in the Australian dollar at some point”, he said.
Mr Stevens also added that considering Australia’s terms of trade and still high costs of production relative to those elsewhere in the world, most measurements would say it is overvalued.
Those companies set to benefit most from a much lower Australian dollar include our major iron ore exporters, Rio Tinto Limited (ASX: RIO), BHP Billiton Limited (ASX: BHP) and Fortescue Metals Group Limited (ASX: FMG), as they would receive more in Australian dollars for their iron ore shipments. The current iron ore price of US$94.70 a tonne equates to A$105.22 at an exchange rate of 90 US cents, while an exchange rate of 80 US cents equates to a price of A$118.38. Fortescue would face another issue though – all of the company’s debt is in US dollars, so a lower Aussie dollar would increase the amount of debt.
Other exporters, including companies like Select Harvests Limited (ASX: SHV) which sends 80% of its product overseas would also benefit.
Then we have those companies with significant offshore earnings, including the likes of CSL Limited (ASX: CSL), Flight Centre Travel Group Ltd (ASX: FLT) and Sonic Healthcare Limited (ASX: SHL). As they repatriate earnings back to Australia, a lower exchange rate boosts their earnings.
Another way investors can take advantage of a ‘significantly’ lower dollar is to buy international stocks or exchange trade funds which invest offshore, now, before the Aussie goes down. It’s not that difficult to do, and investors gain access to a much wider variety of companies, not well represented in Australia, such as Google, Amazon, Apple, IBM and Mastercard and Visa.