Stronger Aussie dollar likely to hit currency exposed stocks
The stock market looks set for a relatively stead opening as investors assess the conflicting influences of firmer commodity prices and a stronger Australian dollar.
The fact that spot iron ore price has returned to within an ace of the $60 level will be a supportive influence for mining stocks today. However, the big jump in the Aussie dollar is a negative
While $AUD buying appears to have been triggered by $US weakness, the Aussie has outperformed gaining ground against other major currencies, especially the Yen.
Australian dollar strength is likely to be a negative today for some of the stocks that like CSL, ResMed and Amcor that have been bought in expectation of an ongoing decline in the currency.
Renewed support for the Aussie dollar appears to have been in part motivated by a view that the recent recovery in the iron ore price will see the RBA hold off another rate cut next week. However, if this rally in the $AUD continues it will itself start to tip the balance back in the other direction, creating an incentive for the RBA to cut and maintain a clear easing bias.
Last night’s US dollar weakness comes ahead of a big news session tonight that will see release of first quarter GDP data and the FOMC meeting. Soft US data in March has seen GDP expectations downgraded for the first quarter. Last night’s news of a much weaker than expected read in the Conference Board Consumer Confidence Index fed into this theme as consumers appear to be reacting negatively to a softer job market and rising gas prices.
For further comment from CMC Markets please call 02 8221 2137.
Frequently Asked Questions about this Article…
A stronger Australian dollar can negatively impact currency-exposed stocks like CSL, ResMed, and Amcor, which have been bought with the expectation of a declining currency. When the Aussie dollar strengthens, it can reduce the competitiveness of these companies' exports and affect their profitability.
The Australian dollar is strengthening against other major currencies due to a combination of US dollar weakness and the Aussie outperforming, particularly against the Yen. This strength is partly driven by a recovery in iron ore prices, which influences investor sentiment.
The iron ore price plays a significant role in the Australian dollar's strength. A recovery in iron ore prices can lead to increased demand for the Aussie dollar, as it boosts the country's export revenues and economic outlook, thereby supporting the currency.
If the Australian dollar continues to strengthen, the RBA might consider cutting interest rates to maintain an easing bias. A stronger currency can dampen economic growth by making exports less competitive, prompting the RBA to take action to support the economy.
US dollar weakness can lead to a stronger Australian dollar, which may negatively impact currency-exposed stocks. However, it can also support commodity prices, such as iron ore, which can be beneficial for mining stocks and provide a mixed influence on the Australian stock market.
Mining stocks are expected to perform well due to firmer commodity prices, particularly the recovery in iron ore prices. This can offset some of the negative impacts of a stronger Australian dollar by boosting revenues and investor confidence in the mining sector.
Key economic indicators influencing the Australian dollar and stock market include the iron ore price, US dollar strength or weakness, and expectations around the RBA's interest rate decisions. Additionally, US economic data, such as GDP figures and consumer confidence, can also impact market sentiment.
Everyday investors can navigate currency fluctuations by diversifying their portfolios to include a mix of domestic and international stocks, keeping an eye on economic indicators, and considering the potential impacts of currency movements on specific sectors, such as mining and currency-exposed stocks.
Call 1300 880 160
Start a chat
Schedule a call
