The Aussie dollar has dropped sharply to a nine-month low and that impacts everyone.
Our Australian dollar has dropped sharply over the last couple of weeks to a nine-month low. And the fact that our interest rate cycle is peaking while other countries are still raising rates is also dampening the value of the Aussie dollar.
Naturally it’s been getting a lot of media coverage – good for business, bad for online shoppers; great for tourism, terrible for petrol prices, etc. But the implications go a l
Okay for business, not consumersot deeper.
Generally, a weak dollar is embraced by business and detested by consumers. Australian business loves it as it boosts competitiveness. Exporters, rural producers, manufacturers and tourism outfits are all more price competitive when our dollar is weak. Their offerings become cheaper compared to foreign alternatives.
Retailers also lap it up as Aussie shoppers turn their attention closer to home – both in-store and online – when those shoes and jeans from the US and UK no longer look as cheap.
So, for consumers it’s these same reasons that a soft dollar is generally perceived as bad news. Imports and foreign travel start to get more expensive when the dollar falls.
Winners and losers
As you can see there are winners and losers from a lower currency. So, lets translate that to your investments.
On the sharemarket, the losers will be those who get hit by higher import prices:
- Qantas, because fuel and aircraft purchases make up such a big part of its cost base. It’s also more expensive for Australians to travel overseas, but cheaper for foreign tourists to visit here.
- Retailers like Harvey Norman, Kogan, Myer, JB Hi-fi also lose because most of the electrical goods and clothing they sell are imported.
The winners are exporters and companies which generate a lot of their profits from overseas operations, because they’ll add value bringing that money back to Australia:
- Resource giants BHP and Rio are major commodity exporters and also have extensive offshore operations.
- News Corp earns the bulk of its profits offshore, as does ResMed, CSL, Cochlear, James Hardie and a raft of other companies.
- Our iron ore miners (like Fortescue and Mineral Resources) and gold miners (like Northern Star and Newcrest) sell in US dollars and get the benefit of the conversion back to Aussie when they get paid.
Review the consequences
It’s worthwhile checking with your broker or financial planner about the specific impact on your portfolio and reviewing the extent of consequences. For example, the currency effect will vary depending on whether the company hedges against currency movements.
Also remember that while the Aussie dollar has been falling against the greenback, the change hasn’t been as significant against the currencies of our other trading partners.
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