The Australian Dollar (A$) ⇨ US Dollar ($)(AUDUSD) exchange rate fell sharply on Friday to 76.58 US cents for every Australian dollar. The measure rose swiftly in May to over 81 cents but just as quickly retreated back into the 76c to 78c range that it’s traded in for much of 2015.
Low, low, low predictions
Many of the economists from Australia’s big four banks expect the dollar to fall below 75 cents over the next two years. The main reason for this is the gradual weakening of the Australian economy and the improvement in the US economy, implying that now could be just as good a time as any to buy into quality companies with earnings in US dollars.
The theory here is that earnings in US dollars correspond to higher earnings in Australian dollars when the exchange rate is lower, improving earnings per share and dividends per share for Australian investors. Exporters like Australia’s big iron ore producers get a similar benefit because the ore they export to China is paid for in US dollars by customers but produced using cheaper Australian dollars. Of course, the opposite is true if the company has US-dollar denominated debt because their interest repayments increase in Australian dollars.
9 Top Blue-Chip Stocks for a Lower Australian Dollar
Here are nine companies set to benefit from the lower Australian Dollar and some details about their operations:
Rigid packaging group Amcor Limited (ASX: AMC) derives 95% of earnings offshore and 30% from the US.
Global blood plasma products company CSL Limited (ASX: CSL) and hearing solutions company Cochlear Limited (ASX: COH) are two of the brightest global medical stocks on the ASX. They both generate a portion of sales in the US, however the movement in the Euro will also impact earnings.
Computershare Limited (ASX: CPU) operates sharemarket registries in Asia, Australia, and New Zealand, Canada, Europe, the United Kingdom, Africa and the United States. Continued demand for its services will provide steadily growing earnings for the foreseeable future and an improvement in US interest rates will meaningfully boost earnings.
Brambles Limited (ASX: BXB) provides container and pallet pooling solutions to companies all over the world and maintains a strong presence in the US.
Fortescue Metals Group Limited (ASX: FMG), BHP Billion Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO), and Santos Ltd (ASX: STO) will all see higher Australian-dollar denominated prices for their commodities, boosting their competitiveness globally, although high US-dollar debt loads for Fortescue and Santos will lessen the benefit.
James Hardie Industries plc (ASX: JHX) has produced a stellar 2015 by gaining market share and growing margins in its US housing products division. James Hardie provides excellent exposure to the improving US housing market and the lower Australian dollar!