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.
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