Strong US jobs data last week means it's no secret the US Federal Reserve is under increased pressure to lift its cash rate for the first time in nearly a decade, with expectations of a June rate hike now being factored in by markets.
Those revised assumptions have brought forward estimates of how far and fast the local dollar will fall against its US counterpart in the year ahead. Already, the Aussie's decline has accelerated towards US75 cents this week, with the potential for big falls from here.
The divergence in the economic outlook for the two countries also appears to be widening and accelerating, which means forward-thinking investors should look to stocks with leverage to an ever-stronger US dollar. Below are four companies to put on your 'falling dollar' radar.
ResMed Inc. (CHESS) (ASX: RMD)
ResMed is a healthcare company that sells market-leading products to treat sleep disorders that it estimates impact around a quarter of the US adult population. It has a market value of $12.4 billion and the large unmet clinical markets are what provide almost bulletproof revenue and earnings growth.
The kicker for Australian investors is that holders directly benefit as the greenback appreciates, because the Australian-listed securities represent a proportionate interest in the US-listed stock.
For example, with the NYSE stock selling for US$66 if the local dollar was to fall to US66 cents the ASX-listed securities would be worth $10 – they sell for $8.78 now — on the basis that they represent a 1/10th ownership interest in the US scrip.
Naturally, the quarterly dividend also increases for CDI holders as it's exchanged from US dollars at a spot rate before payment.
Computershare (ASX: CPU)
This business will be familiar to Australian investors as the global market leader in equity investor record keeping and share market administration. Computershare has also built a formidable position in the US financial services market where it generates close to half its annual revenues.
The company also retains some US$15.1 billion of client funds under management, more than a third of which are reportedly exposed to interest rate movements. As cash rates rise it will earn increased margin income on the funds it holds for clients and nearly all of this income will fall straight to the bottom line.
Computershare is already an attractive business, and with US dollar earnings and direct leverage to cash rate rises, it's uniquely placed to benefit from a surging US economy.
CSL (ASX: CSL)
CSL is a global market leader in the provision of life-saving blood product medicines and vaccination therapies to the public and private healthcare sectors worldwide. Valued at $44.3 billion, the company's products are used in hospitals to perform common tasks like stabilising patients' blood pressure, or treating trauma victims.
National governments in CSL's 27 countries of operation could all double their healthcare budgets tomorrow and there would still be political demand for greater healthcare spending. That's a nice spot for CSL shareholders, with 42% of annual revenues coming from North America the heavy exposure is an additional tailwind.
Westfield (ASX: WFD)
The international operator of the eponymous shopping centres needs no introduction and is something of a double-edged sword given its strong exposure to the US dollar.
Westfield's yield and defensive earnings profile have acted as a magnet to income seekers from overseas recently, particularly those with US dollars to invest. However, as US rates rise the yield's attraction diminishes to foreign investors, although it should become more attractive to Australian investors facing a rate cycle heading in the opposite direction.
Distributions are exchanged from US dollars prior to payment and Westfield has a big development pipeline in the US including the Westfield World Trade Centre in New York. This flagship development is due for completion in 2015 and increased consumer confidence via falling unemployment offers additional upside. Westfield remains a classic defensive investment.
Foolish takeaway
Generally it's inadvisable to put too much emphasis on currency impacts when selecting stocks as company quality and price should be the key parameters for investors focused on the long term. However, the aforementioned are four quality businesses and the outlook for a US dollar stronger for longer offers additional upside and international exposure.
