Traditionally, yields on Australian government bonds have been higher than their US counterparts. In fact, the last time US bonds traded at a premium was nearly 20 years ago. That changed recently as a booming US economy and lacklustre Australian economy conspired to drive the differential below zero again.
- In the short term, higher rates in the US than Australia shouldn’t matter
- If the differential is large and sustained, it should put downward pressure on the Australian Dollar
- Translators – companies that produce profits overseas – are clear beneficiaries. This includes companies like QBE and Brambles
- For exporters the benefit is even greater, as costs stay fixed but revenues increase. This includes mining, energy, and even companies like Cochlear
- A lower Australian Dollar could induce some inflation in the economy, which could be beneficial for retailers.
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