With interim reporting season getting into full swing this week, the stock market will be honing in on company’s outlook statements – with particular interest in what they say about currency. The Australian dollar looks to be heading toward stormy weather, which is good news for the contingent of Australian companies that report their earnings in US dollars, or earn money overseas.
The US dollar enjoyed a strong performance in 2018: at the end of the worst year since the financial crisis, the greenback had gained against all major global currencies except the Japanese yen, and the US Dollar Index – an index of the value of the US currency relative to a basket of its major trade partners' currencies – gained 4.6%. The Australian dollar lost 9% against the US$ in 2018.
The strength of the US$ last year came about through the healthy economic growth of the US, the fiscal stimulus which boosted yields in Treasury markets, a hawkish Federal Reserve lifting rates four times, and fund repatriation by US firms to take advantage of lower tax rates.