The Australian dollar, our proud national currency, is having a great time lately. At the time of writing, 'the Aussie' is buying 73.62 US cents, after touching the 74 US cents mark briefly earlier this week. At these levels, the Aussie is getting awfully close to breaking a 2-year high of 74.1 US cents.
It's been a remarkable turnaround for the national currency, which was trading as low as 70 US cents just at the start of this month. We are now almost 30% higher from the record lows the dollar touched during the coronavirus-induced market crash that we went through in March and April. Back then, our dollar dipped as low as 55 US cents, its lowest level against the greenback since 2002.
Our dollar is also now far higher against the US dollar than where it was back in January and February, before the pandemic took hold. So what does a higher dollar mean for ASX shares?
Buying shares with an Aussie dollar
There's a reason why the dollar is one of the most oft-quoted financial statistics on a day-to-day basis. It affects almost everything in the economy, which means it affects the ASX-listed companies that operate within it.
So, the exchange rate of our dollar basically determines how cheap or expensive it is to import and export goods and services in and out of Australia.
According to reporting in the Australian Financial Review (AFR), if our currency is higher, it is relatively more expensive for Australian companies to send exports offshore, as international buyers have to pay us in Aussie dollars, which have become dearer. Conversely in this situation, it is cheaper for Australian individuals and businesses to buy goods or services denoted in other currencies. That's why we often see things like iPhones, TVs and petrol fall in price when our dollar is high.
But this works the other way as well. When our dollar is relatively low (as it was back in March), it is cheaper for Australian companies to send their goods and services offshore, and more expensive for us to import things.
So, let's talk about the companies that stand to benefit from a higher dollar.
ASX winners and losers
Companies that import goods are well-placed to benefit from the higher dollar. This includes shares like JB Hi-Fi Limited (ASX: JBH), Harvey Norman Holdings Limited (ASX: HVN) and Ampol Ltd (ASX: ALD). If TVs, petrol and computers become cheaper for these companies to buy wholesale due to a more valuable Aussie dollar, they can either pocket the extra profit, or pass it on to consumers in the form of lower prices, without taking a hit to the bottom line.
Conversely, for companies that sell Aussie goods and services to the world, things are getting more expensive. This affects resources stocks like BHP Group Ltd (ASX: BHP) and Woodside Petroleum Limited (ASX: WPL).
So a higher dollar is evidently something to consider for ASX shares going forward!
