BHP Group Ltd (ASX: BHP)
Hi MM, Can you explain why you consider a rising A$ (falling US$) as being good for BHP's share price? I would have thought a higher A$ means less revenue (as products are priced in USD) and therefore lower profits. Thanks
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Answer
Hi Peter,
The chart below illustrates the strong correlation between a rising $A and the BHP share price. The reasoning behind the direct correlation is two-fold:
- BHP as we all know is a miner whose profits are highly correlated to iron ore (Fe) and copper (Cu) prices, similarly to the $A which is regarded as a commodity currency – Aus being a huge exporter – both are positively correlated to rising Cu and Fe prices.
- Commodities are priced globally in US dollars, a weaker USD makes them cheaper for non-US buyers, supports demand and often drives investment toward hard assets such as gold, creating a natural tailwind for commodity prices.
As we often say don’t fight the tape and in this case the chart tells the tale, we remain bullish towards the $A targeting the 75-76c area, a view supported by the US Treasuries recent foray into their long-dated bond market, hence by definition we remain bullish towards the “Big Australian” BHP.
chart
BHP Group (BHP) v Australian Dollar (AUDUSD)
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BHP Group (BHP) v Australian Dollar (AUDUSD)
