The Australian dollar (A$) is plummeting.
Overnight, the U.S. Federal Reserve decided to increase its official interest rate for only the second time since the Global Financial Crisis. Perhaps, more important however was its commentary regarding the outlook.
"The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run," the Fed's minutes read.
"However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data," it said.
While most economists expected the Fed to raise rates overnight, many have now upped their forecasts for further rate rises in the year ahead.
Higher interest rates are likely to affect the profits of local companies, especially those that will benefit from a weaker Australian dollar.
Here are three ASX companies that may be worth adding to your watchlist:
- Event Hospitality and Entertainment Ltd (ASX: EVT) is the name behind leading event and entertainment brands, such as Rydges and Thredbo. It is likely to benefit from growth in local travel and tourism. Its shares also offer a 3.9% fully franked dividend.
- Cochlear Limited (ASX: COH) is a global leader in the development and production of hearing aids. The company does a majority of its business overseas, earning U.S. dollars, with costs incurred in weaker currencies.
- Mantra Group Ltd (ASX: MTR), like Event Hospitality, could be expected to benefit from a boom in tourism as the dollar plummets. Mantra appears to be a very well run hotel provider, with a foothold in the luxury accommodation market as well as in more affordable markets.
Foolish takeaway
Taking a view on macro issues like rising interest rates and a falling Australian dollar can help your investing strategy and returns. However, in order to do so you must devise a strategy that other investors have not recognised or under appreciated. For example, a lower Australian dollar equals higher profits for U.S. dollar earners (like Cochlear) but, chances are, the market has already priced in that growth. Therefore, it is your job to be one step ahead of the next move or have a variant perception. Then, you need to back your conviction and hold for the long term.
