What: China is once again making headlines after the People's Bank of China announced a cut of 1.9% to the exchange rate between the Chinese Yuan and the US dollar.
So What: China's intervention is having ramifications for our local currency, with the Australian dollar (AUD) falling almost one whole cent from US 74.4 cents to US73.5 cents according to a data supplied by Bloomberg.
Now What: The fall in the AUD is a further blow to importers who must now effectively pay more for goods which are priced in US dollars.
While this week has seen good news for shareholders in JB Hi-Fi Limited (ASX: JBH) which reported an impressive profit result, companies such as JB Hi-Fi and peers including Harvey Norman Holdings Limited (ASX: HVN) and Myer Holdings Ltd (ASX: MYR) face a continually complex task and difficult challenge of managing their business in the face of a rapidly weakening currency.
For investors, the changing dynamics faced by Australian businesses from the soft AUD needs to be understood and taken into account. While there are a number of companies – such as electronics and apparel retailers – whom will be challenged by this, there are other companies which will be net beneficiaries.
Potential beneficiaries include businesses such as CSL Limited (ASX: CSL) which have substantial operations in the USA that allow them to earn US dollars and mining stocks such as BHP Billiton Limited (ASX: BHP) which produce commodities that are priced in US dollars. Also Village Roadshow Ltd (ASX: VRL) is exposed to inbound tourism which stands to benefit from increasing numbers of foreign tourists who are attracted to our shores thanks to the weak AUD.
Positioning your portfolio to benefit from tailwinds and avoiding holdings stocks in your portfolio that face headwinds can be one way to outperform the market.
