The Australian dollar continued its slide overnight and dropped below the 70 U.S. cents mark for the first time since 2016.
A stronger U.S. dollar and weak Chinese economic data sent the local currency as low as 69.8 U.S. cents.
It has since bounced back a touch and is trading at 69.95 U.S. cents at the time of writing. This means the Aussie has fallen approximately 11% since this time last year.
I’m not convinced that these declines are over. Given the outlook for rate hikes by the U.S. Federal Reserve in 2019 and the belief that the Reserve Bank of Australia will hold fire on its own until June 2020, I believe the Australian dollar could continue to be sold off.
While this would not be good news for companies that import goods like furniture retailer Nick Scali Limited (ASX: NCK) and discount retailer Reject Shop Ltd (ASX: TRS), it would be a boost to Australian companies generating meaningful revenues in U.S. dollars.
Two which I expect to benefit greatly are listed below:
Appen Ltd (ASX: APX)
This data specialist counts many of the world’s leading technology, automotive and eCommerce companies as customers. They use Appen’s services in order to secure the data they need to create innovative products and services that rely on natural language and machine learning. With almost all its revenue derived offshore and mostly in U.S. dollars, Appen could benefit from the Australian dollar’s depreciation against the greenback.
Treasury Wine Estates Ltd (ASX: TWE)
In FY 2018 this global wine company generated revenue of $961.8 million and EBITS of $193 million in the Americas, making the region the company’s biggest segment. During that year the Australian dollar appreciated and became a headwind for Treasury Wine Estates. The good news is that given its sizeable decline it now looks set to be a major tailwind for the company in FY 2019 and could give its Americas segment and overall result a nice boost.
Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool Australia owns shares of Appen Ltd. The Motley Fool Australia has recommended 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.