Home / Markets / Trump victory could weaken US dollar, benefitting some Aussie stocks

A Trump victory on Tuesday is likely to rattle currency markets expecting trade wars and fiscal stimulus to be major policy consequences. Investors will need to be alert to their currency exposure, as well as appreciating it could provide opportunities to acquire Australian equities with US exposure.

If Donald Trump returns to the White House in 2024 for a second term, markets might experience renewed volatility in the US dollar. In his previous term (2017-21), Trump’s policies – ranging from trade disputes (especially China) to fiscal stimulus – put downward pressure on the greenback.

If similar economic policies emerge under a re-elected Trump – and that’s exactly what he’s promising voters – the Australian dollar, which is the fifth most traded currency globally, could appreciate, introducing challenges and opportunities for those self-funded retirees with exposure to Australian companies with US sales or contracts written in US dollars.

For Australian investors, currency is more than a background factor – it can make or break returns. A rising Australian dollar reduces the value of US-denominated assets in portfolios but benefits Australian companies with substantial US revenue. These businesses stand to enjoying rising profits when converted to Australian dollars, boosting earnings per share (EPS) and driving share price growth.

Currency is often considered the sixth asset class, alongside shares, bonds, property, commodities and cash. Yet it remains an afterthought for many investors, despite its capacity to either magnify or erode returns.

Australian investors need a strategy that addresses currency exposure. Without a framework or hedging policy, portfolios can quickly underperform if currency moves go against expectations.

BHP (ASX:BHP) and Rio Tinto (ASX:RIO) derive between 40 and 50 per cent of their income in US dollars from commodity sales such as copper and iron ore. These profits, when converted into Australian dollars, could lift financial performance in an environment of favourable exchange rates.

Woodside Energy (AX:WDS) and Santos (ASX: STO) also benefit from US dollar denominated LNG and crude oil contracts, accounting for 50 to 60 per cent of their revenue. Beyond resources, Aristocrat Leisure (ASX:ALL), with more than 70 per cent of its revenue from North America, and ResMed (ASX:RMD), having 65 per cent of sales in the US, are prime examples of companies that would see their reported earnings increase with a stronger Australian dollar.

Investors can leverage these dynamics by holding shares in Australian companies with large US earnings exposure. This strategy creates a natural hedge, boosting portfolio performance even if the US dollar falters. As these businesses convert their US profits into Australian dollars, financial results are inflated with a flow-on effect to the share price.

For those with exposure to global ETFs or managed funds, currency risk can be mitigated by switching to currency-hedged versions. As the Australian dollar rises, unhedged international investments suffer from diminished returns when converted back to Australian dollars. Currency hedged funds lock in favourable exchange rates, ensuring stable returns irrespective of forex fluctuations.

Incorporating a currency-conscious approach is essential for Australian investors, especially with the potential for a volatile US dollar environment. Building a diversified portfolio – balancing domestic companies with US earnings and currency-hedged international holdings – provides protection and growth opportunities. A clear policy on currency exposure ensures that fluctuations do not undercut gains, allowing investors to capitalise on market and currency trends.

If Trump’s return to power puts pressure on the greenback, investors can turn potential currency turbulence into opportunity. By aligning portfolios with companies positioned to benefit from favourable exchange rates, Australian investors can profit from operational growth and currency shifts, setting themselves up for healthy returns in 2025 and beyond.