Around lunchtime today the Reserve Bank of New Zealand sent shockwaves through local currency markets by cutting NZ's benchmark lending rates 50 basis points to just 1%. Moreover, it also warned it will happily go further if it doesn't see a pick up in key economic indicators in New Zealand.
As a result of the RBNZ's move the NZ dollar fell 2.2% versus the US dollar to buy just US63.9 cents, while the Aussie dollar got dragged down 1% to buy just US67.
The benchmark NZX 50 Index also closed 1.9% higher as investors cheered a lower Kiwi dollar boosting the worth of overseas earnings.
Fortunately for investors there's also few high-quality ASX-listed, but New Zealand-based companies that should benefit from a falling NZ dollar over the next 12 – 24 months. Let's take a look at them.
Xero Limited (ASX: XRO) is a Wellington-headquartered enterprise facing online accounting platform that is growing strongly in Australia, the UK, US, Singapore, Canada and South Africa. Its software-as-a-service (SaaS) business model and scalability also mean it could grow market share and profits long into the future. It reports revenue and profits in NZ dollars.
a2 Milk Co. Limited (ASX: A2m) is another gangbusters growth story out of the Shaky Isles as sales of its a2-only-protein infant formula and supermarket milk soar in larger markets like Australia, China and Canada. A lot of its input costs will be incurred in NZ dollars before the company sells its product overseas. As such FY20's bottom line could receive a free kick from the RBNZ
Pushpay Holdings Limited (ASX: PPH) is another SaaS business that is basically a digital tithe merchant servicing major churches in the US. It reports and operates in US dollars given its operating and client base there, but has an NZX listing and substantial NZ dollar-denominated shareholder basis. As such if it ever does return capital to NZ a weaker NZ dollar would be a positive.
Foolish takeaway
Generally it's inadvisable to make investment decisions on the basis of currency assumptions, but FX movements could be considered a small positive or negative around any investment case.
What really counts is valuation and company quality, with all three of these businesses fortunately ticking the boxes as good prospects. Personally, I prefer Xero and a2 Milk over Pushpay.
