The Liontown Resources Limited (ASX: LTR) share price has been on fire in recent months. Since 23 June, Liontown shares have more than doubled, rising from 88 cents to the $1.91 the lithium company closed at today. But it hasn't all been smooth sailing.
The Liontown share price has also experienced significant volatility over the past year or so, evidenced by the fact that, despite these recent and breathtaking gains, Liontown shares are only up by around 2.15% over the past 12 months.
Perhaps the more recent successes that this company has enjoyed have come from the falling Australian dollar. A year ago, the Aussie dollar was buying around 75 US cents. But the two currencies have spent the past year diverging dramatically. Today, one Aussie dollar will only buy 64 US cents. Less than a month ago, it was 62 US cents.
Why a low Aussie dollar is a boon for Liontown shares
When our local currency falls against the US dollar, it can have a big impact on exporters like Liontown. Most commodities, including lithium, are priced in US dollars on international markets. That means that producers like Liontown have to receive US dollars in payment for the lithium they sell overseas. Even though they are Australian companies.
Thus, if one US dollar is buying more Aussie dollars, then exporters like Liontown become more profitable when they bring the profits back home and convert these US dollars back to our local currency.
So this could explain why Liontown has had such a good time of it on the markets lately.
But where to from here? Will the good times keep on rolling for Liontown?
Well, perhaps not, according to one expert. As reported in the Australian Financial Review last week, investment bank JPMorgan is predicting that the Aussie dollar is likely to go up over the next year or so, rather than stay at its current and historically low levels.
JPMorgan's currency strategists reportedly expect the Aussie dollar to "claw back steep declines in 2022 over the September quarter, before climbing further to US70¢ ($1.11) by the June quarter of 2023".
"We've encountered an extreme sort of strength scenario in terms of the US dollar", JPMorgan's Jason Steed was quoted as stating. "Clearly, you've got a range of companies benefiting from selling a product that is US dollar denominated and reporting in Aussie dollars". That would include Liontown Resources.
So perhaps the pleasant tailwind Liontown shares have enjoyed in recent months could be coming to an end. But we'll have to wait and see what happens.
