The Australian dollar’s gold run could end and this could have repercussions for a number of ASX stocks.
The Australian dollar fell to 57 cents in the midst of the March 2020 COVID-19 riots, but returned with a roar.
In February of this year, it peaked at just under 80 cents and then declined again to just over 76 cents.
Australian dollar is out of its peak
It is unlikely that the Australian player will test new highs anytime soon. It could even weaken further, according to JPMorgan.
The broker looked at the forward curves (future prices of the Australian dollar against the US dollar). The Australian dollar is projected to average 75 cents this year and return to 76 cents in 2022.
The new estimate for 2021 is 0.8% below the previous forecast, and the estimate for 2022 is 2.5% below previous expectations.
This may not sound like a lot to you, but it can have a significant impact on ASX stocks, which are exposed to significant USD risk.
How the exchange rate affects ASX shares
However, the impact of the weakening Australian dollar against the US dollar is offset by its expected strengthening against the euro.
Many S & P / ASX 200 Index (Index: ^ AXJO) US stocks also sell goods in the EU. Some examples include Cochlear Limited (ASX: COH) share price and Ansell Limited (ASX: ANN) share price.
Meanwhile, ASX shares, like Ramsay Health Care Limited Fully paid order. The share price of Shrs (ASX: RHC) has a greater impact on the euro.
Balancing Act Limits Impact on Profits
“The declines in expected Aussies and NZ dollars against the US dollar had a positive impact on the earnings of companies with offshore P&L in local currency, but for most this was offset by the opposite movement in the euro,” JPMorgan said.
“For US dollar reporting companies, a stronger dollar negatively affected our forecasts, but our spot estimates were supported by a 2 ″ drop in the Aussie.”
This means that the impact of the exchange rate is moderate for almost every ASX stock covered by a broker. But there is an exception.
Biggest winner from weaker Australian
it LLC “Nanozonika”. (ASX: NAN) share price as their sales are especially tied to the US.
JPMorgan raised its earnings per share forecast for the medical device disinfection company by 3.7% and 6.2% for fiscal years 21 and 22, respectively.
Nanosonics’ more favorable earnings forecasts, however, were not enough to convince JPMorgan to raise its recommendation for the stock.
The broker adheres to its “neutral” price requirement for Nanosonics shares but raised its target price by 10 cents to $ 5.40 per share.
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Brandon Lau owns shares in Ansell Ltd. Parent company Motley Fool Australia Motley Fool Holdings Inc. owns shares in Cochlear Ltd. and Nanosonics Limited. Motley Fool Australia has recommended Ansell Ltd., Cochlear Ltd., Nanosonics Limited and Ramsay Health Care Limited. Motley Fool has a disclosure policy. This article contains general investment advice only (in accordance with AFSL 400691). Courtesy of Bruce Jackson.