As some of your (perhaps overly patriotic) friends might complain about (as well as anyone planning an overseas trip), our own Australian dollar is at near-record lows today compared with the almighty US dollar.
At the time of writing, one Aussie dollar is buying just 67.3 US cents. In the past month, we have even seen an exchange rate with a double-6 (albeit briefly).
You have to go back to the depths of the Global Financial Crisis over a decade ago to find the last time our ‘little Aussie battler’ was at such levels – and before that, 2003.
Apart from denting our collective national pride somewhat, the dollar at these lows does have some impacts on the Aussie share market as well. Let’s examine what some of those might be.
What a low Aussie dollar means for ASX shares
In very simple terms, a low dollar translates into imported goods and services becoming more expensive and the products and services we export becoming cheaper.
Therefore, for companies that import raw materials, things are somewhat more difficult than they were even this time last year.
Take appliance sellers like JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Holdings Limited (ASX: HVN). The TVs, fridges and laptops that these companies sell now have to be bought with more Australian dollars, even though their prices may not have changed in US dollars (or Yen, etc.).
Those costs either need to be absorbed by the company itself or passed on to us as consumers (not exactly a recipe for increasing sales and profits).
The good news is that everyone is on a level playing field – a falling dollar doesn’t really disadvantage individual companies, rather entire industries.
Which ASX shares are benefitting?
Of course, where there are losers, there are usually also winners.
Any ASX company that makes a crust by selling goods to the rest of the world will be cheering at our cheap dollar. Mining giants BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Newcrest Mining Limited (ASX: NCM) will be enjoying much nicer profit margins as a result of these currency moves. Same with manufacturing companies like Ansell Limited (ASX: ANN) and BlueScope Steel Limited (ASX: BSL).
Companies that report in US dollars will also be feeling the love from Aussie shareholders. The share prices of CSL Limited (ASX: CSL) and Altium Limited (ASX: ALU) have risen tremendously over the past few years, thanks in no small part to the falling dollar.
Finally, any listed investment company or trust that deals with US shares will be laughing all the way to the bank. Here, I’m looking at Magellan Global Trust (ASX: MGG), WAM Global Ltd (ASX: WGB) and MFF Capital Investments Ltd (ASX: MFF) amongst others.
A falling dollar creates winners and losers. Of course, identifying the trends before they happen is how you can really profit from macro moves like this. But everything usually balances out in the end, as they say.
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Sebastian Bowen owns shares of Magellan Flagship Fund Ltd and WAMGLOBAL FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of Altium. The Motley Fool Australia has recommended Ansell Ltd. 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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