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The Aussie dollar at a critical juncture and could turn fortunes for these ASX stocks

Australian Dollar Down 16.9

The Australian dollar could be at a decisive point as it slumped from its two-month high. Investors should be paying attention as our dollar could fall further and change the fortunes for a range of ASX stocks.

The Aussie battler was trading close to US74 cents early last month but retreated sharply to be around US70 cents this morning.

It’s resting on a psychologically important support line. If it gives up a little more ground, it could easily give up another cent or two. That may not sound like much, but don’t be fooled.

Australian dollar sways ASX stocks

A US1 cent change is a big move on currency markets and it can have a material impact on profits for S&P/ASX 200 Index (Index:^AXJO) stocks.

There are a few “push” and “pull” factors working in unison to knock the Aussie off its perch. The deputy governor of the Reserve Bank of Australia (RBA), Guy Debelle, jawboned our dollar in a speech this week.

RBA taking wind out of Aussie dollar’s sail

He hinted that direct intervention by the RBA to bring down the dollar is one of the arrows in the RBA’s quiver in its fight to support economic growth.

That would be a radical move as the RBA is/was a firm believer in a free-floating dollar – but we live in radical times.

Another push factor is the growing number of economists forecasting another interest rate cut in the next month or two. The cash rate stands at a record low of 0.25% but Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd. (ASX: NAB) are tipping the rate to fall to 0.1%.

US dollar on the attack

On the pull side, the US dollar is gaining ground against all major currencies, including ours. Europe is shutting down economy yet again to curb growing COVID-19 cases, and that’s forcing investors to scurry to the safety of the greenback.

What happens to the Aussie in the next few days could determine where it’s heading over the next few months.

How ASX stocks are affected by the Australian dollar

ASX-listed companies are impacted by the exchange rate in a few ways. They either generate income and/or incur costs in US dollars.

UBS picked the three large cap ASX stocks in its portfolio with most to lose or gain from the AUD/USD exchange rate.

The 3 ASX stocks most impacted by the Aussie

These are blood treatment giant CSL Limited (ASX: CSL), hearing implant maker Cochlear Limited (ASX: COH) and logistics group Brambles Limited (ASX: BXB).

While these companies are also exposed to other currencies, especially the Euro, the broker doesn’t think we will see much movement in the AUD/EUR exchange rate.

This means all the action will be centred on the Aussie’s battle with the greenback.

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Brendon Lau owns shares of CSL Ltd. Connect with me on Twitter @brenlau.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. and CSL Ltd. The Motley Fool Australia has recommended Cochlear 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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