3 ASX 200 companies that could benefit from a falling Aussie dollar

Let's take an in-depth look.

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Key points

  • The embattled Australian dollar is hovering around more than a two-year low. But this is actually good news for several ASX 200 companies 
  • The companies best placed are those who generate most of their revenue in US dollars and have their cost base largely tied to the Aussie 
  • Some examples include Fortescue Metals, Cochlear and Wistech 

The Australian dollar may be wallowing around at more than a two-year low but that spells good news for several S&P/ASX 200 Index (ASX: XJO) shares.

While the Aussie battler bounced more than a cent from its 2020 lows to around US65 cents in the last 24 hours, the trend for our dollar is still down.

Some experts are forecasting the Aussie to fall to around US60 cents before the year end. This is due largely to the faltering global economy driving investors into the relative safety of the US dollar.

How ASX 200 companies can benefit from a weak Australian dollar

It's bad news for those of us looking to holiday overseas, but the opposite is true for many ASX 200 shares.

This is because several of our larger companies are net exporters. This means they sell their services and wares in US dollars.

The weak exchange rate will boost their revenue, earnings and dividends when these are converted to the Aussie.

Why not all ASX 200 companies are smiling

Make no mistake, a weak Aussie is generally good for the overall Australian economy. This assumes it doesn't trigger too much inflationary pressure from imported goods and ignores the impact of hedging contracts that a company may have.

Naturally, not all of our largest ASX shares benefit from this thematic. For instance, Woolworths Group Ltd (ASX: WOW), Telstra Corporation Ltd (ASX: TLS) and Commonwealth Bank of Australia (ASX: CBA) won't get a free lift. In fact, the downtrodden Aussie could even be a headwind to profitability for some of them.

Why some miners benefit more than others

On the flip side, the ASX 200 companies that are best placed to benefit from the currency trend are those that not only sell most of their products in US dollar, but also have a large Australian dollar cost base.

If a company sells and buys in the same currency, then the exchange rate makes little difference.

From this perspective, miners like Fortescue Metals Group Limited (ASX: FMG) could be in the winner's circle. It sells iron ore in US dollars but its mines (and most of its workforce) are in Australia.

This assumes the commodity price doesn't work against the miner in the same time period.

Another ASX 200 company winning from the Aussie

Another currency beneficiary is hearing implant maker Cochlear Limited (ASX: COH). Most of its devices are manufactured in Australia and Sweden while sales in North America make up a substantial percentage of its total sales.

Can ASX tech shares benefit?

ASX tech companies could also be another group that will welcome the falling Aussie – all things being equal. I am referring more to software than hardware innovators. Hardware is mostly made in China and paid for in US dollars, while the main costs for software companies are developers (many of whom may be based here).

Again, I am ignoring the ongoing staff shortages and wage inflation. But if companies can manage their cost base well and sell their solutions in US dollars, then they should be in a sweet spot.

One ASX tech company that I suspect fits this niche is logistics software group WiseTech Global Ltd (ASX: WTC).

Foolish takeaway

Just to be clear, I am not suggesting investors buy an ASX 200 company just based on the exchange rate. There are many other more important variables that need to be looked at when picking ASX shares to buy.

But next time you feel like complaining about the weak Aussie, just remember there are always winners and losers for any event.

Motley Fool contributor Brendon Lau has positions in Commonwealth Bank of Australia and Telstra Corporation Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Cochlear Ltd. and WiseTech Global. The Motley Fool Australia has positions in and has recommended Telstra Corporation Limited and WiseTech Global. The Motley Fool Australia has recommended Cochlear Ltd. 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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