The sharp fall in the Australian dollar is a good thing for some long-suffering companies.
Resource companies are among those expected to benefit from the decline because they earn much of their revenue in US dollars, while their costs are largely denominated in Australian dollars. Among companies expected to receive the biggest benefit are Atlas Iron, Alumina and Yancoal, according to Credit Suisse. Fortescue Metals, BHP Billiton and Rio Tinto are among those that will receive least kick to their earnings.
However, it is not just mining companies that will welcome a weaker currency. BlueScope Steel says a 1 per cent fall in the dollar will lead to a $2 million upward adjustment in earnings before interest and tax.
"A US105¢ to US95¢ decline would have led to a $20 million EBIT benefit to the company," a spokesman said. "And a lower dollar has more benefits to us in terms of things that are harder to measure, such as the volume of potential steel imports coming into Australia. At US95¢, for instance, the Australian market becomes less attractive for importers."
Watermark Funds Management director Justin Braitling said fund managers were becoming concerned about a recession next year, and this would make it "very tough" for cyclical industrial stocks.
With the capital cycle rolling over, economic activity would probably be much weaker next year. "The best strategy at the moment would be to invest in banks and resources," he said.
Brokerage Credit Suisse predicts the dollar will drop to US85¢ over the next year. "In a strict accounting sense, resource stocks ought to benefit from a fall in the Australian dollar compared to the greenback," the brokerage said.