MARKETS SPECTATOR: Dollar disruption

Forecasts vary widely for where the 'Aussie' will trade but some expect if weakness continues, it will be positive for stocks.

Forecasts of where the Australian dollar will be trading are almost as varied as the continent itself. Commercial and investment banks forecast the dollar trading against its American counterpart at between 90 cents and $1.12 in the fourth quarter of 2013.

ANZ’s Andrew Salter says the Aussie will be at 105 cents by year-end. In 2014 it will be at 101 cents. As of 3:20pm AEST it was trading at 98.75 US cents, according to ANZ.

Global central banks will continue to diversify into non-G8 currencies that are triple-A rated, such as the Australian dollar, says Salter. The positive interest rate differential between Australia and the rest of the world will continue to attract funds into local assets, he adds. Salter predicts an LNG mining boom, which he expects to peak in 2014, will also underpin the dollar’s rise above parity against the greenback.

But BT Investment Management’s Chris Caton disagrees. He predicts the dollar at 92 cents versus the US currency this year. It could even fall to 82 cents, he says. That will be “positive for stocks” who earn most of their money offshore. But Caton warns the market is now at “fair value”.

Morgan Stanley Wealth Management’s Malcolm Wood has “fair value” for the dollar at 93 cents because of falling commodity prices and further slips in the Reserve Bank’s benchmark cash rate. A falling dollar will benefit News Corp, Westfield, Cochlear and CSL, all companies that garner much of their revenue outside Australia, he says.    

At close, News Corp was down 40 cents, or 1.2 per cent, to $33.70. Westfield Group was up 8.5 cents, or 1.2 per cent, to $12.28. Cochlear was down $1.70, or 2.4 per cent, to $70.48. CSL dropped $1.63, or 2.6 per cent, to $61.68. CSL shares have gained 70 per cent in the last 12 months. Cochlear’s are up 10 per cent. Westfield’s have added 40 per cent. News Corp is up 70 per cent.

Even miners such as BHP and Rio Tinto may benefit from a weaker Australian dollar, according to Wood. But that is predicated on commodity prices for aluminum, copper and iron ore not falling very much further.

At 4:10pm AEST, BHP’s shares were down 27 cents, or 0.8 per cent, to $33.76. Rio’s shares fell $1.09, or 2 per cent, to $54.68. The spot price for iron ore fell 1.3 per cent from yesterday to $126.40, according to Morgan Stanley. Rio’s shares are down 3.2 per cent over the last year. BHP’s stock has gained 7.4 per cent.

Meanwhile, the S&P/ASX 200 Index dropped 25.958, or 0.5 per cent, to 5165.70 at 4:17pm AEST. Wood predicts the index will rise to 5500 by year-end. It is up 24 per cent in the last 12 months.