AUD Strength Pressuring Exporters – Morgan Stanley
(14 January 2021 – Australia) Sustained Australian Dollar (AUD) strength could negatively impact exporters profits in the upcoming February reporting season according to leading foreign exchange (FX) strategists including Morgan Stanley.
The Australian dollar has rallied by over ten percent since Q2 2020 to now trade at US$0.770 cents. Approximately one in three S&P/ASX 200 index companies (31 percent) are defined by Morgan Stanley as ‘global growers’, corporates deriving at least a quarter of their revenue overseas (25 percent). Morgan Stanley holds a US$0.770 cents forecast for the Australian dollar by the end of 2021.
Raw materials and resources based corporates conversely tend to benefit from a rising AUD, predominantly because if the AUD rises it's often driven by strength in commodity prices, evidenced currently by resurgent iron ore prices.
East & Partners Global Business FX research captures currency forecasts from over 13,000 CFOs and corporate treasures annually. Australian importers and exporters predict the Aussie Dollar to depreciate to US$0.722 cents by the end of H1 2021, with middle market enterprises significantly more bullish than small businesses. Forecasts for the AUD against the GBP, EUR, RMB and NZD are also captured for June 2021, with historical forecasts proving relatively accurate for key decision makers working at the ‘coal face’ over several years with the exception of last round’s COVID-19 impacted forecasts resulting in the largest disparity for underlying FX rates against forecasts since global currency forecasts commenced in 2017.
"Our expectation is that most analysts are currently using numbers of between US$0.70 and US$0.72 for their forecasts. The speed of the currency rally has been such that analysts haven't really caught up” stated Morgan Stanley Head of Australian Equity Strategy, Chris Nicol.
“"So we would expect the first impact of this Australian dollar move to start to feature in analyst previews for February results and also in company outlooks. This is the return of the outlook, currency is going to feature in that " Mr Nicols added.