Credit Suisse analyst Jason Swinbourne expects the Australian dollar to fetch just 85 US cents by May next year, a 12 per cent decline from where the currency is currently trading, because commodity prices are dropping and the Reserve Bank will cut its benchmark cash rate further.
The Australian dollar’s depreciation against the greenback is not all bad news for the stock market, according to Swinbourne in a research note.
Mining stocks, he says, have already priced in a “25-30 per cent decline in commodity prices”. Further declines in the Australian currency will help miners as their costs are in Australian dollars while their revenue is largely in the US currency.
Swinbourne says stocks that have significant US sales will benefit from the depreciation of the Australian dollar against the US currency. These stocks are: packaging company Amcor; pallet and plastic container provider Brambles; ear implant maker Cochlear; casino operator Crown; medical equipment maker ResMed; medical diagnostics company Sonic Healthcare; Treasury Wine Estates; shopping mall owner Westfield Group; building products suppliers CSR and James Hardie Industries; fertilizer supplier Incitec Pivot; News Corp, and explosives and chemicals maker Orica.
The Credit Suisse analyst says retail stocks may be helped by the fall in the Australian dollar. It will improve their competitiveness against online vendors even if these companies may experience some imported cost pressure, says Swinbourne. Still, the key for retailers is Reserve Bank rate cuts boost spending, he says.