Australian dollar continues to strengthen: Two ways to profit

Overnight the Australian dollar continued to defy the odds and strengthened further after U.S. Federal Reserve chair Janet Yellen stressed that the central bank plans to take a gradual approach to tightening due to uncertainty around inflation.

At the time of writing the Australian dollar was fetching 76.8 U.S. cents. This means it has gained over 4% in just the last two months.

Whilst I believe this strengthening may be short-lived and expect the Australian dollar to weaken considerably over the next 12 months, should things not go to plan then a number of ASX-listed companies could benefit.

Here are a couple of shares worth considering if you are bullish on the Australian dollar moving forward:

Nick Scali Limited (ASX: NCK)

This leading furniture retailer holds very little inventory and instead imports stock when an order is placed. The majority of its stock purchases are made in U.S. dollars, which means that a strong Australian dollar is a bonus for the company. The company can then either pass these savings onto the customer in order to boost sales, or enjoy higher margins on the products it sells.

Reject Shop Ltd (ASX: TRS)

This discount retailer is another company I would expect to benefit from a stronger Australian dollar. As the company imports a lot of its inventory, a strong local currency gives it more bang for the buck. This should ultimately result in wider margins. However, the company would still have to overcome weak trading conditions and fellow discount retailer Aldi before it would see any real benefits.

Finally, if you’re bearish on the Australian dollar like I am, then I would suggest you consider an investment in companies like Nanosonics Ltd. (ASX: NAN) and CSL Limited (ASX: CSL).

Both of these companies generate a significant portion of their revenue in the United States and would benefit greatly from favourable currency movements.

Alternatively, this hot dividend stock could also profit from a weaker Australian dollar due to its growing international operations.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia owns shares of Nanosonics Limited. 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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