3 shares that could benefit from the climbing Australian dollar

The Australian dollar surged more than 1% overnight after the US Federal Reserve kept rates on hold and dampened expectations that it would continue on its previous path to hike interest rates.

The dollar is now trading above US 75.5 cents – more than 10% higher since hitting a low of US 68.3 cents just over two months ago.

Interestingly, the Australian dollar was already trending higher before this recent surge thanks to the mini-rally in commodity prices. Australia’s currency is tightly linked to commodity prices and any strength in commodities is usually reflected in our currency’s fluctuations.

The recent surge hasn’t been limited to moves against the US dollar either. It has gained around 10% against the Chinese Yuan, 8% against the Euro and 7.5% against the Yen.

While this is bad news for our major exporters including our miners and oil producers, it is good news for our importers as a higher Australian dollar makes importing goods from overseas cheaper.

Three shares that could benefit from a higher Australian dollar include:

Beacon Lighting Group Ltd (ASX: BLX)

Beacon Lighting is one Australia’s major suppliers of lighting, ceiling fans and light globes with 93 stores across Australia. The majority of products that are purchased and imported by the company are purchased in US dollars and sourced from China. The company has, to date, effectively hedged against movements in the currency, but its current program ends in April. The recent surge in the dollar should provide Beacon Lighting with an opportunity to lock in a more favourable program for future purchases. The company’s first half FY16 results showed a 22% increase in net profit over the previous corresponding period and this strong growth is expected to continue in the second half with same-store sales already making a positive contribution since the start of the year.

Nick Scali Limited (ASX: NCK)

Nick Scali is an Australian furniture retailer which operates predominantly on the east coast of Australia under the Nick Scali and Sofas2Go brands. The company is reliant on importing most of its furniture and has, in the past, warned of business conditions becoming more difficult as a result of a lower Australian dollar. Not only does this squeeze margins, it also makes implementing price increases more difficult especially when it operates in a very competitive market. The recent surge in the dollar, therefore, will be a welcome relief to Nick Scali and provide it with just a little more breathing space to reach its full year targets. At the release of its half-year FY16 results, the company announced it expects net profit after tax for FY16 to be in the range of $22 million to $24 million – an increase of between 28% and 40% over FY15.

Lovisa Holdings Ltd (ASX: LOV)

Lovisa is a specialist fashion jewellery retailer operating 259 stores across Australia, New Zealand, Singapore, Malaysia, South Africa, the UK and the Arabian Gulf. The shares were hit hard in late January after it revealed its margins were being impacted by a lower Australian dollar and increased sales activity. Cost of goods increased 15% as a result of the depreciating currency and while some of this impact was being offset by increasing its retail prices, it still resulted in a 1.2% fall in gross margins. Investors were clearly spooked by this and the shares nose-dived 45% as a result. The shares have since stabilised and if the dollar continues to appreciate, there could be further upside in the share price from here.

Foolish takeaway

While most companies in Australia generally benefit from a lower Australian dollar, it is important for investors to remember there can also be winners when the dollar appreciates.

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Motley Fool contributor Christopher Georges has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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