Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 84

Currency winners and losers

When the Hawke Government came into power in 1983 one of its first decisions was to float the Australian dollar (AUD), assuming that this action would cause the AUD to fall and improve our international competitiveness. Before 1983, the value of the AUD had been set each day by the Reserve Bank of Australia (RBA) and the Federal Government. Since then, rises in the Australian dollar are often presented in the press as a vote of confidence in Australia as a nation. A falling Australian dollar is viewed as a negative event, raising the cost of online purchases, imported flat screen TVs and skiing holidays in Colorado.

Since 30 June 2014, the AUD has fallen 7% against the USD, as the ‘carry trade’ (borrow cheaply in USD and invest the proceeds in higher yielding AUD securities) quickly unwound and foreign speculators fled back to USD. The AUD was sold off more than almost every other developed and emerging market currency, just like it was in the May-June 2013 ‘QE taper’ scare and also in the 2008-2009 GFC. Whilst this move is negative for a government wanting to buy F-35 Joint Strike Fighter jets, the falling AUD can help investors, as both asset allocation into unhedged international equities and Australian equity portfolios can be designed to benefit from a falling AUD.

HD Chart1 171014

HD Chart1 171014

Since floating, the AUD/USD has averaged 76 cents, however as one can see from the above chart the AUD was in a downward trajectory from 1983 to 2002. This was broadly due to Australia’s higher relative inflation rate. The strength in the AUD over the past 10 years has been a result of China’s industrialisation and its associated unprecedented explosion in demand for Australian minerals since China joined the World Trade Organization in 2001. As the impact of this one-off event diminishes, we would expect the AUD to move towards fair value based on purchasing power parity, which we estimate is approximately USD66 cents.


Broadly speaking the companies that are likely to benefit from a weaker AUD fall into four categories:

  1. Companies that manufacture or provide a service in Australia and compete with the now more expensive imports such as steel (BlueScope), fertiliser (Incitec Pivot) or tourism (Crown).
  2. When a falling AUD results in inflation, companies like Woolworths and Transurban should see an expanding profit margin. Their product prices from cans of tuna to road tolls will increase with inflation, whilst a proportion of these companies’ costs remain fixed, thus resulting in higher profits.
  3. Companies that have production costs in AUD but export products like natural gas (Woodside) and iron ore (Rio Tinto) which are priced in USD. A falling AUD translates into higher AUD revenue from the same USD level of goods sold. For example, every 1c fall in the AUD increases BHP’s profit by USD100 million and Rio by USD57 million.
  4. The falling AUD also benefits companies with substantial offshore operations such as CSL and Orica, as their USD- or Euro-denominated earnings when translated back into AUD for Australian investors are now worth more.


The companies that are typically hurt by a falling AUD are those that buy goods offshore for resale to Australian consumers such as retailers Myer and JB Hi-Fi. Over the last 12 months, the 8% fall in the AUD/Korean Won effectively results in a price increase for that new 140cm Samsung LED TV that some may have their eyes on for the upcoming Cricket World Cup.

Similarly, a falling AUD presents a challenge for companies like Qantas that earn revenue in AUD from domestic consumers, but have significant USD-denominated costs such as aviation gas. Further companies that have significant un-hedged USD borrowings such as Boral will see their interest costs increase, especially when the company does not have USD earnings to service their debt. For example Boral’s US building materials businesses last generated a profit in 2007.

How to position a portfolio

Investors who view the AUD as overvalued on fundamentals can position both Australian equity portfolios and unhedged global equity portfolios to benefit from a falling AUD. Favoured companies might be those with significant offshore earnings and strong franchises (CSL, Orica or Sonic Healthcare), rather than structurally-challenged companies that need a declining AUD to compete with imports (BlueScope Steel or CSR). Additionally, mining and energy holdings such as BHP, Rio Tinto and Woodside will benefit from a rising price per tonne of ore or a barrel of oil sold in AUD terms.

Hugh Dive is Head of Listed Securities at Philo Capital Advisors. These comments are general in nature and readers should seek their own professional advice before making any financial decisions.


Leave a Comment:



Australia’s economic outlook robust, but risks are rising

Yikes! Three critical factors acting on inflation and rates

RBA signals the end of ultra-cheap money. Here’s what it will mean


Most viewed in recent weeks

Lessons when a fund manager of the year is down 25%

Every successful fund manager suffers periods of underperformance, and investors who jump from fund to fund chasing results are likely to do badly. Selecting a manager is a long-term decision but what else?

2022 election survey results: disillusion and disappointment

In almost 1,000 responses, our readers differ in voting intentions versus polling of the general population, but they have little doubt who will win and there is widespread disappointment with our politics.

Now you can earn 5% on bonds but stay with quality

Conservative investors who want the greater capital security of bonds can now lock in 5% but they should stay at the higher end of credit quality. Rises in rates and defaults mean it's not as easy as it looks.

30 ETFs in one ecosystem but is there a favourite?

In the last decade, ETFs have become a mainstay of many portfolios, with broad market access to most asset types, as well as a wide array of sectors and themes. Is there a favourite of a CEO who oversees 30 funds?

Australia’s bounty: is it just diversified luck?

Increases in commodity prices have fuelled global inflation while benefiting commodities exporters like Australia. Oftentimes, booms lead to busts and investors need to get the timing right on pricing cycles to be successful.

Meg on SMSFs – More on future-proofing your fund

Single-member SMSFs face challenges where the eventual beneficiaries (or support team in the event of incapacity) will be the member’s adult children. Even worse, what happens if one or more of the children live overseas?

Latest Updates

Investment strategies

Five features of a fair performance fee, including a holiday

Most investors pay little attention to the performance fee on their fund but it can have a material impact on returns, especially if the structure is unfair. Check for these features and a coming fee holiday.


Ned Bell on why there’s a generational step change underway

During market dislocation events, investors react irrationally and it should be a great environment for active management. The last few years have been an easy ride on tech stocks but it's now all about quality.  

SMSF strategies

Meg on SMSFs: Powers of attorney for your fund

Granting an enduring power of attorney is an important decision for the trustees of an SMSF. There are alternatives and protections to consider including who should perform this vital role and when.


The great divergence: the evolution of the 'magnetic' workplace

The pandemic profoundly impacted the way we use real estate but in a post-pandemic environment, tenant preferences and behaviours are now providing more certainty to the outlook of our major real estate sectors.


Bank reporting season scorecard May 2022

A key feature of the May results for the banking sector was profits trending back to pre-Covid-19 levels, thanks to lower than expected unemployment and the growth in house prices.

Why gender diversity matters for investors

Companies with a boys’ club approach to leadership are a red flag for investors. On the other hand, companies that walk the talk on women in leadership roles perform better, potentially making them better investments. 


Is it all falling apart for central banks?

Central banks are unable to ignore the inflation in front of them, but underlying macro-economic conditions indicate that inflation may be transitory and the consequences of monetary tightening dangerous.



© 2022 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.