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How to profit from a weakening Australian dollar

According to the latest Westpac Banking Corp (ASX: WBC) weekly economic report, Australia’s oldest bank is bearish on the Australian dollar and expects it to fall to 70 U.S. cents by the end of next year.

This sentiment is echoed elsewhere with many economists tipping the local currency to sink significantly lower from here as rates rise in the United States and the Reserve Bank keeps its rates on hold.

Whilst this wouldn’t be good for importers like Reject Shop Ltd (ASX: TRS) which pays for a lot of its goods in U.S. dollars, it could be a big boost for companies that generate meaningful revenues in the United States.

Two shares which I expect to benefit from favourable currency movements in FY 2019 are listed below:

Aristocrat Leisure Limited (ASX: ALL)

I think that this gaming technology company could benefit greatly from any depreciation in the Australian dollar. In its first-half results that were released last week, Aristocrat Leisure generated $764.9 million of revenue in its Americas segment. This was almost 47% of the total revenue generated in the first-half, with the majority of the segment’s revenue coming from the massive U.S. market. In addition to this, its Digital segment delivered half-year revenue of $552.9 million, accounting for approximately 33.7% of its total revenue. Although management doesn’t break this down geographically, the United States is believed to be the main market for its games. I believe the potential weakening of the Australian dollar bodes well for its futures earnings growth.

Integrated Research Limited (ASX: IRI)

I already think that this provider of performance monitoring and diagnostics software solutions for business-critical computing environments could be a great investment buy and hold option. So if the Australian dollar weakens, it would become even more attractive. Demand for the company’s services in the Americas has been growing strongly. So much so that 69% of its half-year revenue was generated in the region. With all ten of the largest banks in the United States using its extremely sticky software, I expect strong revenues from the United States will continue for the foreseeable future.

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia has recommended Integrated Research Limited and The Reject Shop 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 Scott Phillips.

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