The biggest headlines from the share market over the last month have come from the massive drop the S&P/ASX 200 Index (ASX: XJO) has endured since mid-February.
Whilst this has been a massive event that affects all Australians, another momentous happening has taken place that has remained slightly more under the radar.
And that’s how our national pride – the Australian dollar- is faring.
The Aussie dollar is at decade-lows right now, buying just 61.1 US cents.
For all of you Forex nerds out there, it’s also buying 65 Japanese yen, 54.7 Euro cents and 49.9 British pence. Thankfully, we’re still buying 1.01 New Zealand dollars.
At current levels, we are now around the lows that we saw in the wake of the GFC (in AUD/USD terms).
What does this mean for ASX shares?
Apart from denting our national pride, the current exchange rate has a number of implications for ASX shares.
Firstly, a low dollar means our exports are a lot cheaper for foreign buyers, for one. That’s great news for mineral exporters like BHP Group Ltd (ASX: BHP), Newcrest Mining Limited (ASX: NCM), Fortescue Metals Group Limited (ASX: FMG) and any other companies that sell products to overseas buyers. They have the wonderful privilege of either keeping prices the same but receiving more money, or otherwise cutting prices without cutting profits.
Conversely, it’s bad news for importers like JB Hi-Fi Limited (ASX: JBH), Caltex Australia Limited (ASX: CTX) and Harvey Norman Holdings Limited (ASX: HVN). These companies have to buy their foreign-made goods (like oil and TVs) at relatively higher prices before on-selling them to their customers. Either they put their prices up or take a hit to their bottom lines.
It also would typically mean higher fuel prices for everyone – which thankfully has been mitigated by the recent plunge in the global oil price. That would normally act as a brake on growth as most companies are exposed to the cost of transportation in one way or another.
For companies that buy and sell Australian goods and services to Australian customers – like the ASX banks, Telstra Corporation Ltd (ASX: TLS) or Coles Group Ltd (ASX: COL) for instance, life goes on relatively unaffected.
It’s also great news for those who already own internationally-based shares like Apple Inc. (NASDAQ: AAPL) or the ASX-based Magellan Global Trust (ASX: MGG). The value of those shares rises in Aussie dollar terms when our exchange rate falls. It’s bad news for those who want to buy more though!
A floating exchange rate is just one of those things that we, as investors, have to deal with as part of normal share market investing. I personally don’t think it’s something to worry too much about unless we get to extreme levels.
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Motley Fool contributor Sebastian Bowen owns shares of Newcrest Mining Limited and Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra 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.