How a Weak Australian Dollar Impacts ASX Retailers and Exporters

Highlights:

• A lower Australian dollar increases the cost of imported goods for domestic retailers.

• Export-focused companies and those with US dollar-denominated revenues may benefit from currency depreciation.

• Key impacted sectors include retail, mining, and healthcare, with differing outcomes.

Retailers that rely heavily on imported goods are among the most exposed to a weaker local currency. Companies such as JB Hi-Fi, Harvey Norman, and Wesfarmers operate business models that depend on sourcing products like electronics, appliances, apparel, and home improvement supplies from overseas.

When the Australian dollar weakens, these businesses face higher costs for imported stock. As prices increase in the supply chain, the companies must decide whether to absorb the higher costs, which may reduce profit margins, or pass them on to consumers, which may impact demand. This dynamic creates pressure on operational performance in the domestic retail space.

Mining and Resource Companies Benefit from Export Advantage

Australia's large-cap miners often benefit from a depreciation in the Australian dollar. Businesses such as BHP, Fortescue Metals Group, and Rio Tinto export iron ore, copper, and other resources, with contracts typically priced in US dollars. When converted back to Australian dollars, these earnings translate into higher local revenue.

This currency effect often boosts reported earnings and cash flow in local terms, even if global commodity prices remain stable. For companies operating in this sector, a weaker Australian dollar can therefore provide a supportive environment for financial performance, particularly when global demand for resources is steady.

Oil and Gas Producers Gain from US Dollar Revenues

Energy companies such as Woodside Energy operate internationally and generate revenue from oil and gas contracts priced in US dollars. A weaker Australian dollar increases the relative value of those revenues when reported locally.

These businesses also incur a portion of their operating expenses in Australian dollars. This cost-revenue mix means that currency depreciation may enhance their reported profitability, depending on how much of their costs are denominated locally versus in foreign currencies.

Diversified Financial Institutions and Currency Impact

Large financial services firms, including Macquarie Group and ANZ, may also experience currency-related effects. Entities with international operations or exposure to global asset markets can benefit from foreign income streams when the Australian dollar is lower.

However, foreign currency volatility also presents complexities in hedging and financial reporting. While some divisions may report increased earnings, the broader institutional structure may face varied outcomes depending on regional exposure and the composition of funding sources.

Healthcare and Biotech with Global Revenues

Global healthcare businesses like CSL earn a substantial proportion of revenue from offshore markets. These earnings are often generated in currencies such as the US dollar or euro. As a result, a weaker Australian dollar can positively influence reported earnings when converted back into the local currency.

These companies typically maintain significant operational bases in multiple countries, with research, manufacturing, and distribution networks spread across regions. Currency depreciation may therefore enhance revenue in Australian dollar terms, although it may also increase costs in non-Australian locations.

Gold Producers and the Currency Edge

Gold producers such as Newmont Corporation may also experience tailwinds from a depreciating local currency. Gold is globally priced in US dollars, so a weaker Australian dollar increases local returns for each ounce sold.

This relationship is particularly relevant for companies that operate domestic gold mines while exporting the product internationally. The resulting currency differential can influence margins and cash generation, especially when local operating expenses are relatively stable.

ASX Shares and Currency Sensitivity

The movement of the Australian dollar creates a wide range of outcomes for different sectors and companies on the ASX. Retailers may face higher input costs from imports, while exporters and businesses with global earnings may benefit from the same trend. The implications vary based on the nature of each company's operations, cost structures, and revenue sources.