Australian dollar's impact on company profits

THE Australian dollar's impact on company profits should be a mixed bag this reporting season.

On one hand, a more than US Dollar 8c decline against the greenback after the dollar punched above US94c in November would have come as a welcome relief to businesses with big US exposures, The Australian reported.

"If anything, that is going to provide a modest boost to earnings," said UBS chief strategist David Cassidy.

But its stellar march forward against the euro is likely to have dented the profitability of companies with operations in Europe. "For companies with big euro rate exposure, that is going to be a pretty clear headwind," Mr Cassidy said.

Last financial year was a roller-coaster 12 months for the Aussie Dollar. After breaking through US94c in November, it was sold down heavily in May to a low of US80.65c, as concerns over Europe's debt crisis intensified.

Fat Prophets analyst Colin Whitehead said the dip would have benefited exporters such as Foster's, which would have been able to compete more effectively on price. "Then you have the broader macro effect of tourism - during periods of Australian dollar weakness the tourism industry will benefit from more overseas visitors."

By the end of the financial year, the Australian dollar Rate had recovered more than 6 per cent to end the year at US85.53c, limiting its effect on local groups with US operations.

RBS equities strategist Greg Goodsell said he would be surprised if the dollar, against the greenback, was a big factor this reporting season.

"In the last 12 months it has averaged between US78c and US92c, so it has been in a reasonable range, whereas during the GFC it went down to the low 60s," he said.

He said Australian stocks generally did not take naked currency risk any more. "Most of them manage their exposures pretty well - they either put financial hedges in place if they have a significant degree of risk or do natural hedging, so if they have US dollar assets they will typically fund themselves in US dollars," Mr Goodsell said.

"Because of that, the currency has to move a long way to have a big impact on earnings results."

But Mr Cassidy said there could be some euro-related downgrades to watch for due to the dollar's strength against the euro exchange rate.

Last financial year, the dollar surged about 20 per cent against the euro, reflecting the differing outlooks for the Australian and euro-zone economies. "Obviously there are lots of moving parts as to how the business is actually going operationally, but companies like Amcor and Brambles do have big European operations," Mr Cassidy said.

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Pounds to Australian Dollars = 1.7575
Euros To Australian Dollars = 1.4903
Australian Dollars to US Dollars = 0.8697
Australian Dollars to New Zealand Dollars = 1.1599

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