The Australian dollar has now retraced pretty much all of the gains it made versus the U.S. dollar over the course of 2016, despite the surprise resurgence in the prices of commodities like iron ore, coal and LNG that are central to the country's terms of trade.
Yesterday, Australia's government also revealed a soft mid-year fiscal outlook that suggests global credit ratings agencies including Standard & Poor's may move to cut the country's prized AAA credit rating due to the government's fiscal deficit.
Elsewhere, some economists at banks like Credit Suisse have recently claimed that the RBA could be forced into cutting rates as many as three times in 2017 in order to provide relief to Australia's overly-indebted households.
While predictions of Australia moving close to a virtual zero-interest rate (ZIRP) policy in 2017 may seem outlandish, when you consider the wider picture of the US Federal Reserve's stated intention to keep lifting cash rates in 2017 it doesn't take a big leap of faith to see that the Australian dollar could trade lower over the next 12-18 months.
Of course investors looking to take advantage of the macro outlook and potential weakness in the Australian dollar will still have to find companies on reasonable valuations.
Below, I have four of the best to consider.
Cochlear Limited (ASX: COH) recent falls in this leading hearing aid maker's share price mean now looks an opportune time to grab a slice of what could be the best long-term growth stock on the ASX. Shares don't come cheap at $116.90, but given the company has a large amount of leverage to a weaker Australian dollar then 2017 could be another strong year for it.
Nanosonics Ltd (ASX: NAN) is the hospital disinfectant specialist that actually has several former Cochlear employees at its senior management level. It also offers exposure to a stronger U.S. dollar as the majority of its device sales are in the region. Importantly (like Cochlear) it has a market-leading product and potentially long growth runway. Shares are not cheap at $3.10, but this looks a high-quality bet for small-cap enthusiasts prepared to take on more risk.
Macquarie Group Ltd (ASX: MQG) shares have climbed higher on the changing macro outlook and this business earns around two thirds of its income overseas. Macquarie is far more agile and adaptable than its larger peers and I expect the business will continue to deliver steady profit growth thanks in part to its growing focus on asset management activities. The stock sells for $87.60 and offers a trailing yield in the region of 4.6%.
Westfield Corp Ltd (ASX: WFD) is the international shopping centre business that is now selling at a far more attractive valuation after recent share price falls. It reports and pays dividends in US dollars prior to their exchange into Australian dollars, which means shareholders are direct beneficiaries of a weaker Australian dollar. Given its combination of value, yield, and overseas earnings it looks a good bet for more conservative investors.
