The Australian dollar is a casualty of the Trump trade war as it collapses to a more than three-year low – thank goodness for this sacrificial lamb!
A weaker currency is generally stimulatory for our economy although it will create winners and losers on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index.
The Aussie lost around half a US cent and is trading at US69.5 cents this afternoon after China struck back with increased tariffs on over 5,000 US imports in a tit-for-tat response to US President Donald Trump's decision to lift tariffs on US$200 billion of Chinese imports to 25% from 10%.
The escalating trade war is prompting investors to dump risk assets and seek the safety of safe haven assets like the US dollar, gold and government bonds.
Is the Australian dollar set for protracted weakness?
This comes at the expense of the Aussie and most ASX shares although the slumping exchange rate will provide an earnings boost to a number of large cap stocks.
There are reasons to think that the Aussie will be on the backfoot for some time too. Our dollar is not only depressed by the trade tension but it will struggle to recover if the Reserve Bank of Australia (RBA) were to cut rates twice this year, as many economists are expecting.
Higher than expected commodity prices (such as iron ore) have been supportive of the Aussie for most of this year but it may not be enough to stop it from sliding further, particularly if global economic activity slumps on the trade dispute.
Our dollar has fallen around 8% over the past year and I suspect it will spend most of what's left of 2019 under US70 cents.
Winners from the falling exchange rate
If that comes to pass, companies that generate most of their earnings in foreign currency, such as the US dollar, stand to benefit as their earnings are inflated when converted into the Australian dollar.
Extra points if these stocks have defensive businesses and this probably explains why the Amcor Limited (ASX: AMC) share price and RESMED/IDR UNRESTR (ASX: RMD) share price are making modest gains today when the ASX 200 tumbled 1% into the red.
Amcor is a packaging company with many customers in the non-discretionary space, while ResMed is a medical device manufacturer that doesn't depend on global trade for growth.
There are other companies that I think will benefit from a lower for longer Aussie too. This includes gaming machine maker Aristocrat Leisure Limited (ASX: ALL) and building materials company James Hardie Industries plc (ASX: JHX).
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