Nothing drives share markets like interest rates, with Australian cash rate futures traders now putting a 78% chance on the RBA cutting cash rates tomorrow.
Those expectations are pared back slightly from the 82% September high hit on the back of some weaker-than-expected jobs data, but it seems most likely we’ll see a rate cut tomorrow.
Currency traders and market makers will have largely ‘priced in’ the interest rate cut to the Australian dollar today. However, over time the outlook suggests it’ll head lower yet if we see further cuts or extreme monetary policy such as a form of quantitive easing.
Moreover, the lower Australian dollar may not be fully reflected into the values of some good quality Australian businesses.
A little serendipity means that a lot of the best businesses on the local share market earn US dollars overseas to provide good leverage to a lower Aussie dollar for local investors. A few I have covered many times before are below.
ResMed Inc. (ASX: RMD) is the sleep apnea business that reports and pays dividends in US dollars before exchanging them into Aussie dollars for local investors. As a market leader the San Diego-based group also has an excellent track record of growth underpinned by the large addressable markets its healthcare products possess.
Macquarie Group Ltd (ASX: MQG) also earns the majority of its profits overseas and its bottom line is a direct beneficiary of a weaker Australian dollar. Management is guiding for H1 FY 2020 profit to be up around 10% on the prior corresponding period, but sticking to conservative looking guidance for full year profit to be “slightly down” on the prior year.
Amcor Limited (ASX: AMC) is the consumer goods packaging business that has a long-term track record of profit and dividend growth. It pays dividends in US dollars prior to exchange into Australian dollars and its outlook is supported by the defensive revenue streams offered by fast-moving consumer goods.
CSL Limited (ASX: CSL) also reports and pays dividends in US dollars and is arguably the best growth business on the local share market. Investors have to pay a premium given its track record and moat, but over the long term it might be worth it.
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Tom Richardson owns shares of CSL Ltd., Macquarie Group Limited, and ResMed Inc.
You can find Tom on Twitter @tommyr345
The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended Macquarie Group 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.
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