The big surprise about Australian resource companies and the lower Australian dollar
The big surprise about Australian resource companies and the lower Australian dollar. Most people would expect the depreciation of the Australian dollar versus the US dollar to be a positive for Australian resource stock prices. However, Portfolio Manager Brenton Saunders says it's not that cut and dried: The US dollar rising against the Australian dollar has significant implications for resource companies, particularly for those with a majority of their operations in Australia. Generally the largest part of their cost base is in local currency in areas like procurement and labour costs, so this translates to an improved cost base in a relatively direct fashion. If the A$ depreciates by 5% then loosely their cost base will lower by 5% in US$ terms so the effects on operating leverage is pretty significant. The only significant consumable offset is typically oil, but there is a big lag effect to come through the system because most of those purchases are covered forward for a quarter of a year at a time. Which stocks will benefit? Click here to find out (VIEW LINK)
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