MENU

Why the plunging Australian dollar should prompt you to look at your portfolio

The drop in the Australian dollar to under US75 cents for the first time in nearly a year could be a sinister sign for the Aussie battler as it paves the way for our dollar to move to a lower trading range in the coming months.

The Aussie had been bouncing between US75 cents and US80 cents since mid-last year and I think will now be wedged between US70 cents and US75 cents for the next six months unless something comes out of left field.

Investors may want to start thinking about the impact of the exchange rate when rebalancing their portfolio for the end of the financial year.

Dovish commentary from the Reserve Bank of Australia on interest rates and the rally in the US currency have driven the Aussie to its current lows and the outlook for the local dollar isn’t particularly great.

This is on-balance good news for our large cap stocks, although any break-out in the exchange rate will always create winners and losers.

Large cap stocks that sells goods and services in US dollars will be the big winners from the currency, and the timing couldn’t be better for the likes of building materials supplier Boral Limited (ASX: BLD) which has been hammered by a poor trading update due largely to bad weather and other one-off factors.

Management has asked investors to give it a few months to correct the downtrend, and when it reports back for the June quarter, the lower Aussie could give the stock an added boost.

Investors struggling to justify the sky-high valuations of sleep disorder treatment device maker RESMED/IDR UNRESTR (ASX: RMD), or ResMed, and blood products supplier CSL Limited (ASX: CSL) will be pleased to see a weakening Aussie as well as their bottom-lines get an uplift when they convert their US dollar earnings into the local currency.

On the other hand, there are some domestically-focused businesses that will also be pleased to see the falling Aussie. The lower Australian dollar will make it easier for cement supplier Adelaide Brighton Ltd. (ASX ABC) to fight off competitors who import cement and related products as these rivals have to pay for their goods in US dollars.

However, the stocks that will benefit most from the waning Aussie are those who sell in US dollars and have a cost base that is largely denominated in the Australian currency.

This includes resource stocks like OZ Minerals Limited (ASX: OZL), Fortescue Metals Group Limited (ASX: FMG) and Santos Ltd (ASX: STO) as they produce onshore and the commodities they sell are priced in US dollars.

Here’s hoping the resurging US dollar doesn’t trigger a rout in minerals and energy prices.

The experts at the Motley Fool have found group of stocks that are well placed to outperform in 2018 and beyond. Click on the free link below to find out what these stocks are and why they should be on your radar this year.

The Richest Man Alive Invests in This

The richest man in the world has just launched a $100 million investment fund and investors who don't take note could miss out on a massive opportunity.

And it isn't by sheer luck. He did it by looking to the future and investing in the big ideas of tomorrow.

This could be your chance to get in on the ground floor!

Click here to discover more!

Motley Fool contributor Brendon Lau owns shares of Boral Limited. The Motley Fool Australia has recommended 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.