Glenn Stevens suggesting the Reserve Bank of Australia could intervene in currency markets to move the Australian dollar lower is a flashing light moment for companies with revenues derived offshore.
A brighter outlook for US growth provides Australian companies with direct exposure to this market with double the benefit -- falling domestic currency and improving growth.
While it has long been known Glenn Stevens and fellow Reserve Bank Board members feel the Australian dollar is too high, the only action the central bank has actually taken that has affected the exchange rate has been cutting interest rates.
There are the usual suspects favoured when the domestic currency weakens, including CSL Limited, ResMed and QBE Insurance Group. But companies such as Brambles Ltd and Sims Metal Management are also exposed to the recovery in global economic conditions, particularly in the US and the currency.
Brambles’ first-quarter sales for this financial year pushed the upper end for full-year guidance and the US pallets business held its own. More specifically, the overall numbers reflected growth from new business wins, around half of which came from US. Continued growth in US markets can only be a positive for Brambles’ exposure to pallets.
In brief, what happens in the US pallets business can skew Brambles’ overall results – last financial year this segment accounted for over half of the sales revenue for pallets overall.
For metals recycler Sims, conditions in America still remain considerably challenging due to limited scrap supply. However, it is reasonable to assume scrap supply will pick up as the US economy continues to gain traction on its way to recovery.
Competition across Sims’ key markets in the US is fierce. To combat this, Sims divested non-core business units within the US, allowing the company to focus on key areas of operation to increase profitability.
The appeal of Sims and Brambles links back to the growth story of the US economy. September quarter GDP growth surprised at 2.8 per cent against an expectation of only 2 per cent. It is also expected the fiscal drag will abate over the year ahead.
For investors, it is ideal to find companies that can leverage the US growth story as well as US dollar strength.