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The Reserve Bank of Australia (RBA) on 07 April 2020 kept the interest rate steady at its record low of 0.25% amidst speculations regarding further reduction in the official cash rate (OCR), given the prevailing uncertainty due to Covid-19. Upon release of the RBA statement, Australian Dollar experienced amodest increase.
The central bank has also purchased approximately $36 billion worth of government bonds in secondary markets, including bonds issued by states and territories, since the introduction of the 3-year yield target on Australian Government bonds.
Current times are highly influenced by the spread of coronavirus, and the RBA has acknowledged its significant effects on economies as well as financial systems across the globe. There have been large economic contractions, huge increase in unemployment rate, among other major challenges inmany countries, due to the heightened uncertainty surrounding the outbreak of the COVID-19 virus.
Also Read: COVID-19 Pandemic: An Economic Emergency to be Dealt With
Covid-19 has increased the level of volatility in the market and left several national currencies in a state of plunge amidst contraction liquidity of the nations. Recently, the Aussie Dollar had slipped to a 17-year low against the greenback, after investors ended up selling riskier assets.
As the markets plunged and currencies were down, investors were more interested in keeping their earnings in safer investments due to the extraordinary volume of uncertainty triggered by the pandemic, which threatens to paralyse large swathes of the worldwide economy. The logic of investors behind the selloff during the times of crisis is to hold the highly liquid assets and cash, to hedge against the risk.
However, AUD/USD was the best-performing currency pair at the end of Monday’s, 06 April 2020, trade after spot prices scored a gain of 1.5%. In the upcoming scenario, strength in the AUD against the USD can be witnessed due to the broad-based strength in the Australian Dollar and weakness in the US Dollar due to the recent coronavirus events. Earlier a week ago, US President Donald Trump had warned of an alarming situationin the upcoming near term, wherein an unmatchable surge in coronavirus cases is expected in the country between 100,000 and 240,000.
Interesting Read: What’s Grabbing Attention in Currency Market?
As the coronavirus has already taken a toll over the financial markets and currency rates, fresh news surfacing in the market about deaths and hospitalisations starting to decelerate in Italy and New Yorkis likely to boost a greater retracement in currency volatility.
Several businesses and sectors could draw benefits from the rising Aussie Dollar, and this could include businesses that consume US Dollar denominated goods and services or businesses that meet the growing desire of Australian consumers for foreign goods and services.
Most likely gainers could be retailers as well as certain healthcare operators. Airlines and travel service providers could have benefitted from the strengthening AUD too, but in the current scenario, the Australian airlines remain grounded due to travel bans and restrictions amidst the Covid-19 outbreak.
Broadly classifying, businesses that gain from a higher AUD are those with import-related operations, while exporters remain at the losing end of the game.
Moreover, strengthening Australian Dollar is likely to attract international investors and lure them to park their funds in big Australian players that could benefit from the rising Australian Dollar value.
Some of such companies are-
- National Australia Bank Limited (ASX:NAB)
- Wesfarmers Limited (ASX:WES)
- Woolworths Group Ltd (ASX:WOW)
- Westpac Banking Corporation (ASX:WBC)
- Telstra Corporation Limited (ASX:TLS)
- Rio Tinto Limited (ASX:RIO)
- Commonwealth Bank of Australia (ASX:CBA)
- Australia and New Zealand Banking Group Limited (ASX:ANZ)
- BHP Group Limited (ASX:BHP)
- CSL Limited (ASX:CSL)
The conventional wisdom of investing in businesses with strong fundamentals and good-quality businesses stands right in this situation too. A portfolio of investors with good quality stocks that have growth potential and comprise of international investment sooner or later relishes growth and wins insituations of rising Australian Dollar.
The big four banks, NAB, WBC, CBA and ANZ and all other businesses share strong fundamentals and a history of significant returns to their shareholders. Moreover, these stocks draw attention from international investors that are likely to invest in promising and strong Australian businesses. The big four banks form the backbone of the Australian economy as well as the financial system.
Consumer discretionary company WES and consumer staples player WOW, the retail giant in Australia, share a fair history of paying dividends to their shareholders.
Founded in 1914, WES comprises ofdiverse business operations that include
- Home improvement and outdoor living
- Apparel and general merchandise
- Office supplies
- Industrials division comprising of businesses in chemicals, energy as well as fertilisers, and industrial and safety products
Boasting a 201,000-member team, WOW is a very well-known retailer in Australia with over 3,000 stores and counting. The Company has been recently making news due to its innovative and pro-active enactment of various measures to curb the influence of Covid-19 on its business, especially store operations.
Moreover, stocks like BHP and RIO are recognised as the strong players in the metals & mining sector of Australia.
BHP is a globally known resources company that majorly engages as iron ore miner and oil player, while producing other commodities such as copper and uranium with key business segments in petroleum, copper, and iron ore.
Metals & mining sector player, RIO produces materials that are vital to human progress like iron ore, aluminium, copper, borates, titanium and diamonds while its operations extend in 36 countries.
CSL is a leading global biotech company engaged in developing and delivering innovative biotherapies and influenza vaccines, and its innovations are used around the world. The Company is driven by the values of becoming a trusted and reliable global leader and areputed brand.
TLS is a telecommunication giant in Australia that offers a diverse range of telecommunications services to its customers. The Company was founded in 1919 and since then has grown to be one of the most prominent names in the Australian telecommunication sector as well as the ASX through drawing international investments.
