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Why these stocks will profit from a falling Australian dollar

The Australian dollar has fallen to its lowest level in 2018 in Monday morning trade with the AUD/USD exchange rate currently at 77.10 cents, its lowest level since late December.

Bearish sentiment on the Aussie has risen over the last couple of trading sessions due to falling commodity prices and a breach of the currency pair’s 200 day moving average, which has fueled selling from a technical analysis perspective.

Investors can expect further volatility this week when the U.S. Federal Reserve is expected to raise interest rates on Wednesday and perhaps more importantly provide clarification on further rate hikes for the rest of 2018. A rate rise on Wednesday will mean that the U.S. cash rate will be higher than the Australian equivalent for the first time since 2001.

The reversal of the cash rate premium is likely to see diminished demand from foreign investors for the Australian dollar resulting in a weaker currency. Australia has offered higher cash rates which proved very attractive for foreign investors to take advantage of the carry trade by borrowing in lower yielding currencies to invest in higher yielding Australian assets.

Australian beneficiaries  

Australian investors can also benefit from a depreciating currency by investing in foreign assets or Australian listed equities whose businesses generate a significant proportion of their earnings in foreign markets.

One such stock that comes to mind is sleep treatment and healthcare business ResMed Inc. (CHESS) (ASX:RMD). ASX shareholders of ResMed benefit from a depreciating Australian dollar because of the manner in which the company’s listing is structured.

The company’s ASX listing is a 1/10th interest in the NYSE scrip where the company has its primary listing. Lucrative gains over the last 5 years have been made by investors of the ASX scrip who have enjoyed a 187% gain on their ResMed shares compared to owners of the NYSE scrip who have only seen a gain of 112%.

Another stock that should profit from a depreciating Australian dollar is gaming company Aristocrat Leisure Limited (ASX:ALL). The company’s gaming operations in America were the largest contributor to operating profit for its 2017 record result. Aristocrat’s increased presence in the digital gaming space can also benefit from a lower dollar given the significant size of revenues earned in the U.S. mobile gaming market.

Other stocks on the Australian market that also stand to benefit from a lower Australian dollar include Amcor Limited (ASX:AMC)Integrated Research Limited (ASX: IRI) and Macquarie Group Ltd (ASX: MQG).

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Motley Fool Contributor Tim Katavic owns shares of Aristocrat Leisure Limited. The Motley Fool Australia has recommended Integrated Research Limited and ResMed Inc. 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 Scott Phillips.

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